BARAK APPROVES EXCESS SHEKELS OUT OF GAZA; TACIT

S E C R E T SECTION 01 OF 02 TEL AVIV 000423

NOFORN
SIPDIS

STATE FOR NEA/IPA AND SEMEP; NSC FOR KUMAR; TREASURY FOR
MOGER/KNOWLES

E.O. 12958: DECL: 02/23/2020
TAGS: ECON PTER KPAL KTFN IS
SUBJECT: BARAK APPROVES EXCESS SHEKELS OUT OF GAZA; TACIT
"NO" TO CASH IN

REF: A. TEL AVIV 359

B. TEL AVIV 413

Classified By: Economic Counselor David R. Burnett; reasons 1.4 b/d


1. (C/NF) As Gen. Eitan Dangot, Coordinator of Government
Activity in the Territories (COGAT),promised the Ambassador
on February 16 (see ref A),Minister of Defense (MOD) Ehud
Barak publicly approved the transfer of 282.5 million surplus
New Israeli Shekels (NIS) from banks in the Gaza Strip to the
Bank of Israel as a humanitarian gesture on February 18.
COGAT will lead implementation of this decision and Post
contacts expect the transfer to occur as soon as the
technical arrangements are made with the Palestinian Monetary
Authority (PMA).


2. (C/NF) This decision was a result of an inter-agency
review effort, spearheaded by the Israeli National Security
Council (NSC) Legal Department. The NSC tasked the Bank of
Israel as well as the security establishment with providing
assessments of the banking sector in Gaza, particularly
regarding excess NIS and deficits in U.S. Dollars (USD) and
Jordanian Dinars (JD); topics drawn directly from Palestinian
Monetary Authority (PMA) requests. While Uzi Arad was
briefed on the results of this inquiry, the NSC decided that
a decision on these issues should come from the Minister of
Defense and not the Prime Minister himself, given that the
decision was primarily dominated by security concerns and, as
a subset of Gaza policy, was too specific for PM involvement.
Gil Avriel (please protect),legal advisor at the NSC, who
led this review and drafted the policy recommendations,
underscored that the review process and decision was
predominately a result of repeated appeals from the USG to
respond to the PMA requests and substantive GOI-USG dialogue
on these topics, and less a result of international pressure
or humanitarian concerns.


3. (U) Robert Danin, Head of Mission at the Office of the
Quartet Representative (OQR),praised MOD's decision in a
public letter, noting extensive engagement by OQR and the
U.S. government with the Israelis on this and other issues
related to the Palestinian banking sector. In the letter,
Danin stressed that OQR will continue to call for a
comprehensive solution to the cash transfer issue and lobby
for the entry of "much-needed dollars and dinars into Gaza to
shore up the formal banking system and to cover all dollar
and dinar-based salaries and business transactions."
According to OQR research, transactions in foreign currency
have "always represented a significant percentage of cash
transactions in Gaza and does not support the tunnel
economy." (Note: This assessment conflicts with that of the
Israeli security establishment, see ref B. End Note). Though
Danin views this as a "much harder 'ask'," OQR will continue
to pressure the Israelis to permit USD and JD into Gaza.


4. (C/NF) Mention of such foreign currency inflows was
noticeably absent from the public MOD/COGAT announcement,
though Avriel confirmed that this topic had been "seriously
considered" during this review process and meeting chaired by
Barak. He hinted that the lack of any declaration on this
topic should be interpreted as a tacit "no." Avriel does not
see a scenario in theQear future where further USG or
international engagement will persuade the GOI to allow USD
into Gaza due to serious security concerns (Note: These
concerns have been laid out for us more explicitly by
Israel's security services, see ref B. End note). At this
point, Avriel cautioned that it would be counterproductive to
engage the GOI on these cash transfers, since it would signal
that the USG and international community do not take GOI
decisions and humanitarian gestures seriously. He mentioned
the OQR announcement, and questioned why the GOI should make
humanitarian gestures, if after every step taken Israel
receives little to no credit and is immediately told that its
actions haven't gone far enough.


5. (S/NF) Embassy Comment: Based on ongoing discussions with
various Israeli officials, we assess that the GOI will be
reluctant to permit inflows of foreign currencies, especially
USD, into the Gaza Strip (see refs A and B). While flows of
NIS pose little security threat, the entrance of more USD
could feed the underground economy in Gaza (albeit,
indirectly) and bolster the standing of Hamas.
Alternatively, Jordanian Dinars present a diminished threat
according to Israeli security authorities and their
legitimate use (i.e. trade with the West Bank, and,
traditionally, as part of dowries) are more clearly

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demonstrable than those of USD. If we are able to draw more
of a distinction between USD and JD, Israel might be more
willing to permit JD into Gaza. As per Avriel's comments, we
believe any further approaches on Gaza banking issues will
have a higher likelihood of success if paired with
acknowledgment of Israel's decision on excess shekels,
appreciation for responding to U.S. inquiries on the topic,
and a serious dialogue regarding Israel's concerns about
permitting foreign currencies into Gaza.
Cunningham