Finance Minister Smotrich Pushes Cabinet to Approve Aid for Palestinian Banks Despite Prior Opposition

Finance Minister Bezalel Smotrich brought a cabinet decision to extend a government indemnity framework that supports Palestinian banks, contradicting his earlier statements that he would let these banks collapse. The decision, approved last week, allows Israeli banks to continue acting as intermediaries for Palestinian banks in international financial transactions, with the state providing legal indemnity to Israeli banks against potential lawsuits or fines related to money laundering or terrorism financing risks.

The cabinet discussion saw criticism of Smotrich’s absence, despite the decision being brought in his name. Ministers, including Orit Struck from Smotrich’s own party, sharply criticized the move. Struck expressed disappointment, saying, "We are reviving the Palestinian Authority," while National Security Minister Itamar Ben-Gvir and Minister Yitzhak Wasserlauf also condemned the decision and urged Smotrich to reverse it. Ben-Gvir stated, "I would never revive the Palestinian Authority. This would never happen in our party."

The indemnity framework is crucial because Palestinian banks lack direct access to the global financial system and rely on Israeli banks as intermediaries. The government’s legal backing aims to prevent economic collapse in the Palestinian Authority by enabling continued financial operations despite international sanctions and legal risks.

Last year, Smotrich announced he would cancel this indemnity mechanism following sanctions imposed by several European countries against him and Ben-Gvir. However, the recent cabinet approval extends the framework, reflecting the government’s reluctance to allow the Palestinian Authority’s financial system to fail. Government Secretary Yossi Fox justified the decision by emphasizing the desire to avoid the PA’s collapse.

The debate highlights internal tensions within the ruling coalition, with some ministers opposing the policy and criticizing Smotrich’s handling of the issue. The cabinet’s approval effectively maintains the status quo of Israeli banks mediating Palestinian financial transactions under state protection, despite political controversy.