Israel Braces for Economic Slowdown
The global financial crisis has not directly affected Israeli banks, but some are beginning to worry about the country’s biggest tycoons as financial markets fail ahead of parliamentary elections.
Israel is largely an export-oriented economy and is bracing for a blow as international demand is expected to drop. Companies across Israel have announced plans to cut workers.
Israel’s economy is dominated by a relatively small group of businessmen, who bought up many state-owned companies during the country’s drive to privatization in the late 1990′s. The country’s top 14 family run businesses control one-fifth of the market value of the Tel Aviv Stock Exchange. They run the largest cellular operators, food retails, gas stations, banks, etc. However, high debt and real-estate exposure overseas among these families is shaking their investors’ confidence.
Israeli stocks are falling. Most importantly, the corporate bond issues by market capitalizations has fallen 21.4% since the start of the year. The corporate bond market is relatively new in Israel and has attracted big investments from retirement funds. This has made the bond issue a political issue. Israel’s umbrella labor union has threatened to strike if the government doesn’t do something about pension-fund losses. Parliamentary elections are just two months away and the financial market trouble has stolen some of the limelight from the issues of national-security.
One Israeli tycoon, a self-made diamond magnate, has seen shares of his real-estate and energy company fall 87.9%. They reported a loss of about $475 million in the third quarter. He has big investments in the U.S. and Russia and will be selling off some property in New York to pay debts. Other tycoons are in a similar situation.
However, Israel seems to be heading into this crisis comparatively better off than the U.S. or European economies due to tight bank regulations, low government deficits, and strict mortgage terms. But they are scrambling for solutions like the rest of the world.
Israel’s finance ministry announced an 11 billion shekel ($2.75 billion) plan to bolster the economy last week. It calls for 6 billion shekels in guarantees for banks and another 5 billion to create funds that will be invested in corporate bonds and loans for companies. They also proposed a 21 billion shekel plan to boost employment and invest in infrastructure.
Jamie Hughes
