In a world awash in growing sovereign debt, to the point of loss of control in some European countries, Israel's relative economic standing is strengthening. It is no wonder that Ministry of Finance representative in New York Sigi Sayag and deputy accountant general finance and banking Eran Heimar are optimistic about Israel's international economic standing and its ability to raise external debt.
Sayag is responsible for the management of Israel's external debt. In an interview with "Globes", Sayag and Heimar reveal the Ministry of Finance's plans to raise additional foreign currency debt in 2012. They explain why, despite market shocks and the deteriorating geopolitical environment in the Middle East, the ministry is very confident and is not even worried that the US might reduce its aid to Israel.
"Globes": Israel's geopolitical condition has worsened as a result of the changes in the Middle East. How does this affect Israel's ability to raise capital?
"There are geopolitical effects, but investors can distinguish between them. Evidence is the recent upgrade of Israel's credit rating. Israel has good macroeconomic figures, and in a world of shaky financial systems, unpleasant neighbors are not as scary as they once were."
Is there a risk of a politically motivated investor boycott against Israel, for example by pro-Palestinian European countries such as Norway or Belgium?
"Today, the geopolitical situation does not affect the credit situation. What will happen tomorrow, we don’t know. But if Norway doesn’t want to invest in Israel, there will be other countries: China, Thailand, Singapore, Russia. There's enough money in the world that is seeking Israeli diversity for its investment portfolio. In our last offering in Europe, in March 2010, demand totaled €13 billion, and we had to cap the investment at €1.5 billion. There's a lot more demand for Israeli bonds than we can offer."
If our condition is so good, why does Israel still need State of Israel Bonds?
"Israel Bonds is a strategic asset for Israel. Rating agencies even cite its existence. It's true that Israel Bonds hasn’t been needed in recent years, it seems expensive, but it will help when needed in hard times. Other countries, such as India and Greece, come to ask us for advice on how to mobilize their diasporas for the good of the country. Israel Bonds is a tool for expressing support for Israel in hard times, and the capital raised is influenced by what is happening in Israel.
"By the way, it's not just Jews who buy. There are American groups who see this as a way of sending messages to the Jewish community and the administration."
The US is heading for a recession, unemployment is high, and calls for belt tightening are heard from every side. At the same time, Israel receives $3 billion a year in military aid. Is there a risk to the continuation of US aid in its current format, and should we expect demands to cut it?
"There is such a scenario, but it's unlikely, especially not when the Middle East is in upheaval. That's why it's unlikely that the aid will be cut. There's an alliance between the countries, and both sides have an interest in maintaining it. For example, this year, defense aid was higher than planned, and supplements were given for Iron Dome."
Unsocial
Does the Ministry of Finance plan to raise foreign currency debt soon?
"We plan to raise foreign currency debt next year. We don’t really need the money; the goal is to keep financing channels open. Like any CFO of a business, we prefer to diversify our sources of financing and to maintain a constant market presence. It's necessary to raise capital from investors when you don’t need it, so that they'll be there when you do."
The present timing is a bit problematic, with the social protest threatening to breach the budget framework and increase the deficit.
"To the best of our knowledge, we're not going to breach the budget framework, but we'll change priorities within it. Israel has shown a consistent reduction in the deficit over time, and the markets now love Israeli credit. In contrast to other countries, Israel's banks are not in trouble, and the country's rating is rising, not falling."
What will happen if the protest nonetheless results in a breach of the budget?
"Israel raises NIS 80-100 billion a year. A lack of confidence and anxiety is translated into higher interest rates, and it's unsocial to pay too high interest. If we bequeath our problems to our children, that's unsocial. If the protest causes us to increase the deficit, the public will pay higher interest over time. If Israel raises debt with a duration of eight years, and if as a consequence of breaching fiscal limits, we have to pay another 0.5% interest, we'll end up spending hundreds of millions of shekels more each year."
Published by Globes [online], Israel business news - www.globes-online.com - on October 18, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011