GAZA CASH: GOI SECURITY AND POLICY CONCERNS

S E C R E T SECTION 01 OF 02 TEL AVIV 002496 SIPDIS TREASURY FOR DAN MOGER, STATE FOR NEA/IPA AND SEMEP E.O. 12958: DECL: 11/17/2019 TAGS: EFIN KTFN IS SUBJECT: GAZA CASH: GOI SECURITY AND POLICY CONCERNS DOMINANT REF: TEL AVIV 02446 Classified By: Economic Counselor David R. Burnett for reasons 1.4 b/d ¶1. (S) Summary: A senior GOI security official cited several security and policy concerns in permitting the transfer of U.S. dollars and Jordanian dinars into Gaza, though he promised to raise the topic within the appropriate interagency committee. The GOI continues to view its policy of restricting funds to Hamas as successful and does not want to jeopardize its continued effect--especially as leverage in the indirect negotiations for Shalit's release. However, the Israelis also acknowledge the importance of building economic alternatives to Hamas, such as the PMA-regulated banks, since Israeli has the most to lose in the long-run from an unstable Gaza. End Summary. - - - - - - - - - - - GOI's Gaza paradox... - - - - - - - - - - - ¶2. (S) Udi Levi, Director of the Bureau of Counter Terrorism and Proliferation Finance at the Israeli National Security Council, claimed the GOI's policy of restricting the flow of funds to Hamas is succeeding, echoing other recent conversations with our interlocutors (see reftel). In a recent meeting with Econoff, Levi said that Hamas was under pressure because its external financial support system had been "destroyed" by Israel--with key assistance from Egypt and the Palestinian Authority. However, he highlighted the inherent paradox of GOI's policy objective of "destroying the Hamas economy in Gaza," while, at the same time, supporting alternatives. Levi acknowledged that by crippling Hamas financially, Gaza's economy has been stifled--due to Hamas' pervasiveness. This has made it difficult to improve the quality of life for average Gazans. However, he noted that support for Hamas among the Gazan population is deteriorating, which he said was a direct result of Hamas' inability to improve the economic conditions in Gaza. - - - - - - - - - - - - - - - - - - - - - - ...trumped by security and policy concerns - - - - - - - - - - - - - - - - - - - - - - ¶3. (S) Levi cited policy and security concerns as the reason for GOI's continued refusal to permit the transfer of U.S. dollars and Jordanian dinars into Gaza (outside of the monthly USD $13.5 for UNWRA salaries). He said that Israel is faced with a difficult decision in allowing such transfers since Hamas utilizes dollars for its salary payments, and the illicit tunnel economy functions primarily in dollars and euros. Outside of this, the GOI is not convinced that there is a sufficient level of legitimate dollar- or dinar-denominated purchases in Gaza to necessitate a cash infusion to the PMA-run banking sector. Levi said that the primary reason for dollar and dinar cash shortages in Gaza is that it has "all gone out through the tunnels." The GOI believes that Hamas is very adept at tapping into any money flowing into Gaza, and would find a way to benefit from any increase in the transfer of dollars and dinars. ¶4. (S) Additionally, the GOI views economic pressure as one of the most important levers Israel has against Hamas in its on-going indirect negotiations for the release of Gilad Shalit and a return to relative calm. The economic embargo has become increasingly important, according to Levi, as the GOI faces growing international condemnation for taking military action against Hamas. He said that the GOI is unwilling to take any economic steps forward in Gaza which could be misconstrued as yielding to Hamas before Shalit is released from captivity (which he believes might happen by the year's end). The Prime Minister's chief negotiator, Hagai Hadas, has asked Levi to join the Shalit negotiating team due to the important role economic factors are playing in the end game. The Hadas team thinks that economic bargaining chips (i.e. loosening the strangle-hold on Hamas's finances) will be key to obtaining an acceptable deal over Shalit. Levi remarked that Israel's use of economic pressure as a diplomatic tool against Hamas is similar to what the U.S. and the international community are doing with Iran and North Korea, noting that Hamas has made Gaza a de facto "rogue state." - - - - - - - - - - - - - - - - - - - - Supporting PMA banks as an alternative - - - - - - - - - - - - - - - - - - - - TEL AVIV 00002496 002 OF 002 ¶5. (S) Levi did, however, acknowledge the need to balance Israel's economic embargo of Hamas with support for PMA-regulated banks in Gaza as an alternative to the Hamas-dominated parallel economy. He conceded that this would mean providing the banks with the dollars and dinars necessary to boost depositor confidence and enhance banking operations for the general population (i.e. small-scale personal transactions). Levi promised to raise this with the Gaza interagency group. He suggested that strong PMA regulation of dollar/dinar transfers and withdrawals (especially of large amounts) would be critical to the GOI agreeing to increases in liquidity. He said that the GOI would have to reach an understanding with the PMA over how best to permit small-scale legitimate personal transactions while blocking larger-scale illicit activity, though he stressed that any solution would have to rely on PMA regulation--and not GOI interference. ¶6. (S) Comment: Our Israeli interlocutors have repeatedly told us that the GOI finds itself stuck with the difficult paradox of how to cripple Hamas while simultaneously supporting an economic alternative in Gaza. Though several of our interlocutors are forward-leaning on the issue, short-term political concerns and the need for non-military security leverage over Hamas continue to dominate GOI interagency discussion of the Gaza economy. So long as the GOI believes that an economic embargo of Gaza is the lowest-cost means of forcing Hamas to spend more on basic governance -- and, presumably, less on enhancing its military capabilities -- Israel is likely to persist in limiting cash transfers in all currencies to the minimum required to meet personal banking (vice commercial) requirements. CUNNINGHAM