Gazans using tattered notes because of cash crunch

GAZA CITY, Gaza Strip: The term "financial meltdown" is taking on a whole new meaning in the Gaza Strip: Under pressure by Israeli sanctions, local banks are literally running out of cash.

Most banks have sharply curtailed withdrawals, the U.N. has stopped distributing cash handouts to Gaza's poorest, and tempers are heating up as desperate people line up at local branches hoping to get a little money out of their frozen accounts. Economists and bank officials warn that tens of thousands of civil servants won't be able to cash their paychecks when they get their salaries next month.

"No society can operate without money, but that's the situation we are reaching in Gaza," said Gaza economist Omar Shaban.

Israel has not allowed cash shipments since October, part of a series of sanctions it has imposed on Hamas since the group seized power in June 2007. Israel tightened the blockade earlier this month in response to a wave of rocket attacks out of Gaza. It fears Hamas will use money to fund attacks.

But the cash shortage has little effect on Hamas, which funnels money into Gaza through smuggling tunnels from Egypt. The militant group distributes cash to its own loyalists and the thousands of people it employs. It does not deal with the formal banking system.

Shaban said the money shortage has worsened because residents tend to keep savings stashed at home, rather than in banks. Gaza businessmen pay in cash for goods imported from Israel, further bleeding money out. Gaza's tunnel smugglers, who bring in diesel and goods into Gaza from underground passageways linked to Egypt, also pay in shekels for purchases.

Little money comes into the territory, meanwhile, because Israel has banned exports.

Jihad al-Wazir, of the Palestinian Monetary Authority in the West Bank, said his agency has asked Western officials to try pressure Israel to allow the money in time to pay December salaries. Mideast envoy Tony BlairTony Blair and the World Bank have also contacted Israel about the issue.

The cash crunch is the latest shortage spreading through Gaza. Israel and Egypt's tightened blockade of the territory have caused widespread power blackouts, severe shortages of cooking gas and flour stocks are diminishing. Israel has virtually sealed the crossings since the outbreak of violence.

Israeli defense officials said they had not ruled out further cash transfers, but said nothing could be delivered while fighting persists. Shlomo Dror, an Israel Defense Ministry spokesman, questioned the seriousness of the shortage. "We are used to the Palestinians inventing things and we are looking into their claim," Dror said.

The crunch has made life a misery for some 40,000 of the territory's public servants, whose salaries are deposited into bank accounts by the West Bank government. Some residents head to the banks almost daily to withdraw their salaries in drips, keeping lines long and frustrations high.

"I'm begging the bank to give me shekels, " said public servant Shawkat Othman.

Othman stood in a crowded bank line for four hours this week, waiting to withdraw 700 shekels - some $175. Signs pasted inside banks tell customers they will not be allowed to withdraw more money.

Chris Gunness, spokesman for the U.N.'s Relief and Works Agency, said the agency halted cash handouts to 98,000 of Gaza's poorest residents. Gunness said they could not obtain a daily sum of 270,000 shekels ($67,000) to make the distributions.

ATMs throughout Gaza City still dispense U.S. dollars. But most Gaza residents try avoid withdrawing dollars, because money changers are expensive. Instead, Gazans deal in tattered, greasy Israeli notes. Residents mostly use cash - few stores accept credit cards.

"I've got only 30,000 shekels ($7,500) left to exchange," said Abu Radwan, an informal money changer who stood outside a bank in downtown Gaza City. "I have a new rule - I only accept $200 at a time," he said.

As the shekel supply dries up, Gazans will likely be forced to rely on dollars, Jordanian dinars, Egyptian pounds or even barter to conduct commerce.

Ironically, instead of harming Hamas, the cash shortage seems to be hurting President Mahmoud AbbasMahmoud Abbas' West Bank government, which needs to pay salaries to shore up support for his rule.

"The absense of shekels in Gaza is weakening one of the few tools left to (the Abbas government) that it could use to have influence in Gaza," said Shaban, the economist. ""And that is salaries to thousands of public servants."

The Israeli shekel is a widely used currency in the Gaza Strip, and the territory needs at least 400 million shekels, or about $100 million, each month in new currency to replace aging notes and to pay salaries, economists say.

The main source of currency is the moderate Palestinian government in the West Bank, which sends in currency shipments each month to pay its civil servants. The government still claims authority over Gaza, despite losing control of the territory last year to the Hamas militant group.

source:googlenews.com