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 TEL AVIV 00000423 002 OF 002 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