In January, 2011, an article was published in the “Globes” Real Estate section, with one central claim: the government has “privatized” the risk of investments over the Green Line, and companies, people, and families who establish businesses or build houses in these areas do so at their own risk. Lacking any agreement, or intention of reaching an agreement, with the Palestinians, the initiatives become unilateral plans, and the door is opened for sanctions on Israeli companies, which are forced to cope on their own with the damages.
The article also claimed that local regulators prefer not to address the matter at all, so that banks and institutional investors that are exposed to the risk of embargo or sanctions, due to investments in the territories, do not know the extent of their responsibility, or if they need to report the risk.
When the article was published, three years ago, the idea of an embargo seemed academic to most Israelis, and the diplomatic initiative regarding an agreement with the Palestinians was dismissed mostly by ridiculing PA President Mahmoud Abbas, or Abu Mazen. And now, three years have passed, and it seems that everything that was written then is becoming Israel’s official policy. When the Prime Minister’s Office throws up an idea that Israelis living in the West Bank will stay there under Palestinian sovereignty, it means that the economic risk, such as property value, falls solely upon them.
Most of the families living across the Green Line did not move there for ideological reasons, rather for financial reasons. There is an assumption that, eventually, there will be a diplomatic agreement, which will define the “settlement blocs” to be included in Israel. But Netanyahu’s current official government policy does not accept this assumption, or any other assumption regarding the future map of the region. It’s possible that this situation will change in the coming weeks or months, or even sooner, no one knows what will happen if the negotiations with the Palestinian Authority fail.
The situation in the business sector is even worse, and already today businesses must carry the full burden of the risk alone, without knowing to what extent they are responsible, or to what they are exposed. The embargo is no longer a theoretical threat, and is not some hypothetical topic that appears in the Real Estate section of “Globes.” Israeli Minister of Finance Yair Lapid told the business sector that it is liable to be harmed, and to suffer financial loss due to activity across the Green Line. Lapid also announced publicly that there is an internal document at the Treasury that estimates that these losses will be significant.
From the moment these matters were conveyed to the public by the man who is in charge of the economy, two things must happen. Firstly, the Supervisor of Banks, the Supervisor of Capital Markets, and the Israel Securities Authority can no longer escape the issue of risks and losses. If public companies, institutions, and banks are exposed to risks, these matters must be on the agendas of their boards, and made public in financial reports.
Secondly, every company, bank, and institutional investor should assess the extent of risk that it is willing to assume, how much damage it is willing to be exposed to by international embargos or sanctions, and whether it is worthwhile to maintain the status quo. In effect, board members must ask themselves to what degree they are responsible for potential damages, if such a discussion does not take place and is not documented.
From the moment US Secretary of State John Kerry and Yair Lapid spoke on the matter, the option of preserving the opacity that characterized the activities of the companies and the regulators disappeared. This is happening while there is no certainty regarding the government’s will or ability to reach any agreement regarding its various issues with the Palestinian Authority. Policy may be unclear, but there is increasing clarity regarding the economic damage. So it seems that the privatization of risk is the inevitable outcome of Israeli government conduct.
Published by Globes [online], Israel business news - www.globes-online.com - on February 5, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014