Ministry of Finance and Bank of Israel officials view the preliminary International Monetary Fund (IMF) 2004 report on Israel as a "malfunction" that will not stop the Bachar reform of Israel's banking system and capital market.
Israel is already readying a public information campaign to reverse the IMF recommendations during IMF executive board meetings in Washington in advance of the final IMF report on Israel, due in February or March 2005.
All attempts by the Ministry of Finance and Bank of Israel in the past two days to insert changes in the wording and some of IMF recommendations regarding the planning banking and capital market reform failed. Delivery of the report was delayed yesterday to prevent, as far as possible, the banks responding immediately. The preliminary IMF report was delivered to Minister of Finance Benjamin Netanyahu and Governor of the Bank of Israel David Klein yesterday.
In private meetings with Bachar committee members, IMF delegation warned that separating the mutual and provident funds from the banks through legislation was too aggressive and liable to undermine the banking system. The delegation also warned that that Israel was carrying out too many measures simultaneously, which was liable to undermine capital market stability and investors' confidence.
Behind the scenes, Israeli officials are disquieted by the actions of the five-member IMF delegation, which spent two weeks in Israel. Experts in Jerusalem said off the record that the IMF delegation "came from the moon", and did not adequately understand Israel's markets.
It was originally intended to issue a sharp rejoinder, declaring that the IMF delegation's interpretation was wrong, based on an incorrect assessment, as if reforms for increasing competition in the capital market had already been carried out and there was no need for new reform measures, especially special legislation. For instance, the IMF delegation believed that pension funds already operate in the capital market, and natural development through streamlining measures by the banks should therefore be allowed to take place.
Ministry of Finance and Bank of Israel chiefs ultimately decided on a restrained response, suggesting that they will write to the IMF executive board in Washington. Ministry of Finance director general Dr. Joseph Bachar's restrained response revealed only some of his anger accumulated in the past few days.
"The IMF delegation's attitude toward the process of separating the mutual and provident funds from the banks does not meet the test of Israeli reality. Their conclusions are based on the assumption that implementation of piecemeal reforms are already underway to increase competition in the capital market and ease its distress. That is not the situation - on the contrary. Piecemeal reforms have been under discussion for two decades without ever being translated into deeds," said Bachar.
Published by Globes [online], Israel business news - www.globes.co.il - on December 21, 2004