ECONOMIC SURVEY - 06-Dec-95

(COMMUNICATED BY GPO ECONOMICS DESK)

6 December 1995

GOVERNMENT SECTOR

* BANK HAPOALIM MUST SELL ALL ITS HOLDINGS IN EITHER KOOR OR CLAL, ACCORDING TO BRODET COMMISSION REPORT ON CONCENTRATION IN ECONOMY.
Bank Hapoalim, Israel's largest financial institution, must sell all of its holdings in either one of Israel's largest industrial conglomerates Koor Industries or Clal Israel, according to a recommendation contained in a report on banking and economic concentration issued by committee headed by Finance Ministry Director General David Brodet. Bank Hapoalim controls 22.7% of Koor's shares and 33.2% of Clal's shares. Among the commission's other recommendations are that: the banks (Bank Leumi and Bank Hapoalim) must reduce their holdings in non-banking concerns to 25% by the end of 1996, and to 20% by the end of 1998, and may not hold this amount in more than one large conglomerate; the banks may not sell their holdings to any of the other major conglomerates including the Israel Corporation (Shoul Eisenberg Group) or IDB (Recanati Family Group); the banks must gradually reduce their non-banking holdings to the equivalent of 15% of the bank's shareholders' equity by 2001; the banks must not hold controlling interest in the firms in which they have equity, and thus may not appoint the general manager or company chairman, though they can appoint directors proportionate to their holdings; and the sale of the banks holdings will be distributed to shareholders as dividends.

According to Brodet, the commission, which included members from the government, Bank of Israel, academic, and industry, accepted all of the recommendations unanimously. According to commission member Avi Ben- Bassatt, Senior Director responsible for Research and Foreign Exchange operations at the Bank of Israel, the value of companies controlled by Bank Hapoalim equals approximately one-third of the value of all companies listed on the Tel Aviv Stock Exchange. (Globes, 5.12.95, p.3) Brodet said that, internationally, Israel ranks second among Western countries, behind Ireland, with the highest level of economic concentration in the banks. He also said that PM Peres had promised that the Government would make a decision on the recommendations within two weeks. Following any Government action, the recommendations will have to presented to the Knesset as bills for approval. The commission was appointed by late PM Yitzhak Rabin on 2.10.95, and its report was submitted to the government on Sunday, 3.12.95.
Finance Ministry - Eli Yosef, 972-2-317201

MACRO-ECONOMIC SECTOR:

* EXPORTS DOWN WHILE PRIVATE CONSUMPTION AND IMPORTS INCREASE DURING SEPTEMBER-OCTOBER.
Exports of industrial products, and goods and services declined while both production input and industrial investment imports rose in September and October 1995, according to indicators measured by the Central Bureau of Statistics. The CBS reported that these trends will cause the country's balance of trade deficit to rise to $9.8 billion by the end of the year. Import of electrical appliances rose during the period, along with an increase in sales in the chain store sector.
Central Bureau of Statistics - David Neumann, 972-2-6553400

* NEW ASSESSMENT: GOVERNMENT BUDGET DEFICIT IN 1995 WILL BE 3.5% OF GDP.
Israel's budget deficit for 1995 will reach NIS 9 billion, or 3.5% of the country's GDP, Globes reported. On 4.12.95, the Finance Ministry's Accountant General reported that the Government's deficit in November was NIS 1.2 billion, bringing the budget deficit for the first ten months of the year to NIS 7.7 billion, excluding net lending by the Government. The Finance Ministry had projected a budget deficit of 2.75% for 1995. Globes had reported that the budget deficit would reach approximately 4.5% for the year, based on deficit projections made earlier during the year.

(Globes, 5.12.95, p.1)
Finance Ministry - Eli Yosef, 972-2-317201

* STANDARD & POOR'S RAISES ISRAEL'S CREDIT RATING TO A-.
Standard & Poor's, the international financial rating service, raised Israel's foreign currency credit rating to A- from BBB+ on 4.12.95. The new rating relates to Israel's upcoming issue of $200 million in Yankee bonds, which for the first time will not be backed by U.S. guarantees. S&P also raised Israel's foreign currency credit rating on short term debt to A1, up from A2.
Finance Ministry - Eli Yosef, 972-2-317201

* ISRAEL'S FOREIGN CURRENCY RESERVES FALL TO $8.27 BILLION IN NOVEMBER.
Israel's foreign currency reserves fell by $116 million in November, to $8.27 billion, the Bank of Israel reported. This is the second month in a row in which the figure has fallen. The Bank reported that the minor change was due to several factors including Government, banking sector, and non-financial sector activities which balanced each other.
Bank of Israel - Ohad Bar-Efrat, 972-2-6552712

PEACE ECONOMICS: