Banks said smuggling money out of Palestine
Palestine, Economics, 2/7/1998

Most of the banks operating in Palestine have not stood up to Palestinian expectations and have failed to promote constructive investments in Palestine.

Palestinian officials believe the banks have misled the authorities and are serving "only their own interests without giving any attention to the domestic needs of boosting investment in various fields of public and daily life." According to Palestinian estimates, the amount of private deposits by Palestinians in the West Bank and Gaza Strip in local banks reach up to US $1.5 billion. Other estimates even say that the amount has come close to US $2 billion. Yet, the percentage of participation by those banks in domestic investments, by means of granting loans for local projects, does not exceed 27 percent.

In countries where normal conditions prevail, the bank's loan ratio can reach 75 percent of domestic deposits. But banks operating in the PNA areas serve somehow like a safe to transfer the money abroad. On Saturday morning, Al Quds daily in East Jerusalem reported that Jordanian bank branches in Palestine have lately been transferring all Palestinian cash deposits to Jordan, contrary to an agreement signed to this effect with the Palestinian government. Those banks had committed themselves in those agreements to keeping at least 30 percent of their cash deposits within Palestine. Press sources in East Jerusalem said these banks today keep no more than five or ten percent of their cash in Palestine while the rest is transferred to Amman.

A senior official at the Bank of Jordan's branch in Ramallah said the report was not true and insisted that all banks operating within the Palestinian jurisdiction abide by agreements with the Palestinian government and by the monetary rules it applies. "As far as we are concerned at the Bank of Jordan, I can say this is totally untrue. Our activities are fully monitored by the Palestinian Monetary Authority and they are the ones who have full and detailed reports on our activities," said the official, who requested anonymity. He added that an official announcement might be given by his bank within hours, or perhaps days refuting the allegations "which would only cause harm to the relationship between the bank and our customers."

The report on cash transfers caused a chaotic confusion among a number of financial institutions as well as ordinary people. "If this report turns out to be true," said a money changer in East Jerusalem, "it shows that some serious developments are very much expected in the near future, like a US attack on Iraq or probably an outbreak of violence between the Palestinians and Israel." He demanded that all banks involved in the report come out openly and explain to the public what exactly is the state of affairs on this issue.

The Palestinian Monetary Authority's head office in Gaza denied any knowledge of the report and ruled out the possibility that banks were involved in smuggling their deposits out of the country. "We monitor every activity of those banks and I have a strong reason to believe that this report is not accurate," said a PMA official. Interviewed by phone, the official said the PMA will examine the report and double check all data it receives and collects on banks to check if any illegal transfers were conducted by them.

He noted that all transfers are done with the full authorization of the PMA and therefore, any extra amounts of money transferred from those banks abroad must have certainly been sent out legally. The source noted that ever since the banks started to operate in the PNA "a relation of trust and confidence has developed between them and the Palestinian authorities and there is no reason to believe that this report on illegal transfers is accurate."

The problem, Palestinian financiers believe, is in the lack of strict rules and the absence of a firm policy by the Palestinian Monetary Authority. The PMA, said one expert, should have introduced laws of its own considering all banks operating in the West Bank and the Gaza Strip as full-fledged independent banks and not branches of other banks, based in either the Arab world or in the West.

"All the banks operating in Palestine today are extensions and branches of banks that follow the rules of their host countries. But once these banks are treated as independent financial institutions, they will have to adopt a new set of rules that do not necessarily match the ones in the original host country." To explain his point, the expert said that all banks operating in Palestine should know that in return for their licenses they should invest a major part of their deposits in domestic projects, and not transfer this money abroad to their head offices.

The expert blamed the PMA for not developing a new system by which bank deposits are transferred to the PMA and not to the head offices of those banks abroad. "The PMA can collect those deposits and have them registered with one of the major international banks abroad as a guarantor but should not allow this river of cash to flow out of Palestine in days when every dollar counts in building the economic infrastructure of the Palestinian state."

The sector in Palestine most badly in need of large amounts of cash investment is construction. Housing projects are below their minimum rate because of lack of sufficient funds to get them off the ground. "I would ask myself why wouldn't banks operating in Palestine grant loans at considerable interest percentage to Palestinians seeking to build in their own respective towns and cities," asked Dr. Mohammed Ishtayeh, director of Administrative, Financial and Support Services at PECDAR (the Palestinian Economic Council for Development and Reconstruction).

He said that instead of granting loans at an acceptable rate like 5.6 plus two percent for housing projects, all banks in Palestine offer loans at a relatively high interest rate of no less than 12.5 percent. "People are deterred from taking loans at such a high interest rate when they know that elsewhere banks offer similar loans at a much lower interest rate," he said. He added that anyway, the money is mainly collected by domestic depositors and therefore, the banks should provide these services not as a gesture of favor to the Palestinians but as a means to support their economy."

The other route of investment that Dr. Ishtayeh suggests is having the bank themselves involved in direct housing investments. He said a consortium of banks can have a joint venture of housing projects in a number of cities whether on the West Bank or the Gaza Strip. "This way," he said, "those banks will have no reason to worry whether they will retrieve their money or not because they are the ones who control the whole venture." He noted that this kind of activity is well spread in all countries and that only Palestinian banks operate in a 'safe-mode' by which money is collected for local depositors and sent abroad instead of being invested domestically.

Previous Stories:
  World Bank lends Palestine $10 million   (1/24/1998)
  Shaath: Palestinian economy in danger   (1/17/1998)
  Poverty increases in Palestinian areas   (1/15/1998)

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