ISRAEL EXPEDITING CUSTOMS REVENUE TRANSFERS TO PA

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 000559 SIPDIS SIPDIS NEA/FO FOR DANIN; NEA/IPA FOR GOLDBERGER, SHAMPAINE, SACHAR; EEB FOR DIBBLE, GARRY; TREASURY FOR CONNOLLY; NSC FOR ABRAMS E.O. 12958: DECL: 03/10/2018 TAGS: ECON EFIN EAID PGOV PREL IS KWBG KPAL SUBJECT: ISRAEL EXPEDITING CUSTOMS REVENUE TRANSFERS TO PA Classified By: Ambassador Richard H. Jones for reasons 1.4 b and d. -------------- Summary -------------- ¶1. (C) Michal Finkelstein, Senior Advisor to the Ministry of Finance (MOF) Director General, told EconCouns and DeputyCouns on March 3 that the GOI is doing everything possible to expedite the transfer of the customs revenue it collects on the Palestinian Authority's behalf. She said that Israel is now "advancing" customs money to the PA, which claims to be low on operating funds, and is taking deductions for monies owed to Israeli government entities only after consultations with the PA. On the JEC (Joint Economic Committee),Finkelstein said that there is no set agenda for the March 11 meeting, but that the GOI would look to use it as a vehicle to help the PA overcome some of the obstacles to moving ahead on proposed industrial projects and the May investors conference in Bethlehem. On the Israeli economy, she said that Israel needs a consistent long-term policy of fiscal responsibility in order to minimize uncertainty. On the issue of the expenditure increase for the 2009 budget, Finkelstein indicated that it is likely to come in at slightly higher than the present 1.7 percent, and noted the importance of developing a methodology free from the pressure of politics and other outside events to come up with a reasonable figure year after year. She mentioned that DG Ariav traveled again to the U.S. to encourage investment in Israel and that the work of the new Capital Markets Committee had begun. End Summary. -------------- -- GOI "Advancing" Customs Revenue to PA -------------- -- ¶2. (C) Michal Finkelstein, the Senior Advisor to the MOF DG told EconCouns on March 3 that the GOI is doing all it can as quickly as possible to transfer to the Palestinian Authority the customs revenues it collects on its behalf. On the 26th of each month, the MOF completes its accounting for all of the money it collected in the prior month. A few days later, at the end of the month or the beginning of the following month, it transfers the money. In early February, she said, the PA asked to get the money faster, complaining that it has no funds available for operations, so the MOF "advanced" NIS 150 million of the January money before the accounting was complete. The MOF plans to continue these "advances" if it estimates that enough money will be left in the next month's revenues after taking deductions to cover the amount transferred early. -------------- GOI Not Taking Deductions Unilaterally -------------- ¶3. (C) Finkelstein said that the deductions are used to cover the PA's "huge" debt to Israeli entities such as hospitals. The total debt to hospitals for the mid-December to end of January period is about NIS 50 million, 9 million of that to Hadassah hospital alone. The MOF is not taking the deductions all at once - for instance, it is taking NIS 25 million a month for 2 months to pay the hospital debts. Finkelstein added that the Israel Electric Corporation is owed about NIS 200 million. 100 million of that will be deducted "now," (Note: apparently meaning that the deduction will be divided up between the revenues collected in January and February. End Note),and the other 100 million in April. Given that the monthly collection is about NIS 200-250 million - and trending down, this does not leave a lot of money left over to transfer. Finkelstein noted that the MOF is "entitled" to make the deductions to pay off Israeli government entities unilaterally - without consultations with the PA. However, she said that consultations are always held on the issue and the deductions are taken by agreement between the GOI and the PA. -------------- GOI Wants JEC to Solve Problems -------------- ¶4. (C) On the JEC (Joint Economic Committee),Finkelstein said that the next meeting would be held on March 11. She said that there was no set agenda, but discussions would likely revolve around the status of several of the projects proposed for the West Bank, industrial park planning, and the Bethlehem Investor Conference scheduled for May. Finkelstein TEL AVIV 00000559 002 OF 002 particularly noted that the Israeli side would seek input from its Palestinian interlocutors on the barriers preventing forward movement on projects and the conference, and actively help to deal with problematic issues. -------------- Fiscal Responsibility Will Continue -------------- ¶5. (C) Regarding the Israeli economy, Finkelstein stressed the importance of pushing for consistent and fiscally responsible policies over the long-term in order to minimize uncertainty. She said that Israel still needed to reduce its debt to GDP ratio and push for a reduction in the overall size of the government. When asked what spending growth rate the Israeli side will propose to the USG at the forthcoming Joint Economic Development Group Meeting, Finkelstein said that opinions in the Finance Ministry vary, but that the proposed number will likely be somewhat -- but not much -- higher than the present 1.7 percent. She also noted the importance of developing a sound methodology to arrive at a reasonable figure year after year, without having the process constantly be subjected to the pressures of politics and external events. The Ministry of Finance will spend the next few weeks deliberating the issue, and would then consult with other government bodies, such as the Bank of Israel and the Prime Minister's Office before a final decision is made. -------------- Capital Markets Committee Begins its Work -------------- ¶6. (C) Finkelstein mentioned that the Finance Ministry Director General, Yarom Ariav, has again traveled to the U.S. in another of his series of trips designed to drum up interest in investing in Israel in meetings with potential investors. She also indicated that the new "Capital Markets Committee" has just begun its work. It consists of five separate subcommittees, each devoted to a particular aspect of modernizing Israel's capital markets and bringing them up to international standards. One will work on encouraging competition in the local capital market. A second, headed by David Brodet, will deal with regulatory modernization. The third will address ways to develop the human capital needed to make the markets function properly. The fourth, headed by MOF DG Yarom Ariav, will discuss how to help Israel's capital markets develop the ability to integrate into the international system, and the fifth will address how to ease access to the capital markets for small and mid-sized firms. ********************************************* ******************** Visit Embassy Tel Aviv's Classified Website: http://www.state.sgov.gov/p/nea/telaviv You can also access this site through the State Department's Classified SIPRNET website. ********************************************* ******************** JONES