Saturday, November 29, 2008

The politics induced liquidity crunch

That we live in bizzare times has long been accepted, but I guess never fails to surprise us ever so often. Here is a report on how banks on the Gaza strip are facing a liquidity crunch as a result of sanctions by Israel. The Associated Press reported, "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......The main source of currency is the moderate Palestinian President Mahmoud Abbas' government in the West Bank, which sends in currency shipments each month to pay its civil servants. The government dominated by the Fatah faction still claims authority over Gaza, despite losing control of the territory last year to the rival Hamas militant group." Gazans are pushed to using tattered notes. One newspaper noted that the term 'financial meltdown' has taken a whole new meaning here.

This is even when Israel's banks will be infused with $2.75 billion to shore up the banking sector to ensure credit availability. Merrill Lynch cut earnings estimates for Israeli banks by 40% in 2009. A MarketWatch article critiques the measures taken by the Treasury Department in Israel.

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