ECONOMIC SURVEY - 05-Jul-98

July 5, 1998

(Communicated by GPO Economics Desk)

GOVERNMENT SECTOR:

* ISRAEL BALANCE OF PAYMENTS FOR 1ST QUARTER DOWN
Israel's balance of payments for the 1st quarter of 1998 shows the Current Accounts Deficit equaling $0.5 billion, compared to $0.9 billion for the same period last year, a drop of $0.4 billion. During the 1st quarter of 1998, the following statistics were registered, with comparative figures for the same period last year: The National External Debt increased by $2.2 billion, compared to $1.7 billion: the economy's foreign assets grew by $1.8 billion, compared to $1.4 billion; total investments in Israel were $0.6 billion, compared to a net total of $0.9 billion; Israeli investments abroad amounted to $25 million, compared to $220 million.

The drop in the Current Accounts Deficit in the 1st quarter is due to the drop in the Trade Accounts Deficit, although this was partially offset by a rise in the Services Accounts Deficit and a drop in income from unilateral transfers. The figures for the 1st quarter of 1998, and comparison to the same period in 1997 are: Trade Accounts Deficit reached $1.0 billion, compared to $1.5 billion (this deficit includes security imports in the sum of $0.5 billion, compared to $0.4 billion); the Services Accounts Deficit amounted to $1.0 billion, $41 million more than the 1st quarter last year); income from unilateral transfers dropped by $0.1 billion to total $1.5 billion for the quarter.

Over 2/3 of the increase of foreign debt was Public Sector Debt, while the remainder was private sector debt (just as occurred in the 1st quarter of 1997). The Bank of Israel's Foreign Currency Reserves grew by a total of $1.2 billion plus another $0.8 billion in other banks. During the same period last year, the Bank of Israel's Foreign Currency Reserves grew by $4.2. billion, whose those of private banks dropped by $2.1 billion.

The Net Foreign Debt Reserves reached $18 billion at the end of March 1998, the difference between a total foreign debt of $53 billion and total foreign assets of $35.8 billion. It should be noted that these changes do not include changes derived from fluctuations in the exchange rate between the US Dollar and other currencies. (www.cbs.gov.il)
Central Bureau of Statistics - David Neumann, 972-2-6553400

* US $ EXCHANGE RATE UP
The exchange rate for the US$ rose by 3.7% since the beginning of the year. European currencies also rose between 2.8% and 4.5%, except for the Swiss Franc which dropped by 0.8%, while the Japanese Yen also dropped by 4% over the same period. The US$ also rose when compared to most foreign currencies traded in Israel, rising 7% compared to the Yen; 4.5% to the Swiss Franc and 0.8% to German Mark, while dropping 0.8% compared to the Pound Sterling.
(www.bankisrael.gov.il)
Bank of Israel - Gabi Fishman, 972-2-6552712

* INTEREST RATES DECLINE
The Bank of Israel announced that the average cost rate for unlinked credit to the public dropped to 16.4% in May 1998, compared to 16.67% in April and 18.17% in March. Short-term interest rates dropped to 14.9% in May, compared to 15.3% in April, and interest on credit on bank accounts dropped to 18.5% from 18.8%. The difference in interest on banking activities vis-a-vis the public the difference between the rate that banks charge creditors and the rate they pay depositors declined to 6.0% in May from 6.1% in April. The banks' financial profit margin increased to 4.01% in May, compared to 3.96% in March, while the average general balance of unlinked Shekel credit to the public rose to NIS 72.9 billion in May.
(www.bankisrael.gov.il)
Bank of Israel - Gabi Fishman, 972-2-6552712

* FINANCE MINISTER APPOINTS CAPITAL MARKET OVERSIGHT TEAM
Finance Minister Ya'akov Ne'eman has, in coordination with Bank of Israel Governor Jacob Frenkel, appointed a team to coordinate capital market supervision. The team, headed by the Finance Ministry director general and including the supervisor of banks and the chairman of the Securities Authority, was established to carry out coordination activities in various spheres, including the following: coordinating policy for determining norms and requirements of supervision, criteria and rules for registering those engaging in supervision, determining stabilization rules, rules for imposing limits on borrowers and loans, regulating supervision on activities subject to the authority of one supervisor and carried out in the sphere of another, coordinating enforcement and penalties, institutionalizing mutual reports and the exchange of information between supervisors, coordinating measures in time of crisis, coordinating proposals for necessary amendments to legislation, and more. The team was also asked to examine the establishment of an overall supervision authority for the capital market, along the lines of the British Financial Services Authority and to submit its recommendations to the finance minister no later than 1 March 1999. Finance Ministry Director General Ben-Zion Zilberfarb announced his intention to convene the members of the team within two weeks, in order to hold an initial discussion. Finance Ministry - Esti Appelbaum-Polani, 972-2-5317201

* BANK OF INSTRUCTIONS TO COMBAT YEAR 2000 BUG
Supervisor of banks Ze'ev Abeles published additional instructions regarding the "2000 bug", according to which the banks must complete plans and implementation of their automation systems (databases, software, operating systems, hardware and equipment, infrastructures and external communications systems) and bring their plans to the directorate for authorization no later than 30 September, 1998, so that the year 2000 will pass without incident. Special emphasis is to be placed on automated systems with external groups including government authorities, the stock exchange and customers. Any delays or problems are to be immediately reported to the supervisor. The instructions are based on similar instructions published by the American authorities for banks and financial institutions there.
(www.bankisrael.gov.il)
Bank of Israel - Gabi Fishman, 972-2-6552712

MACRO-ECONOMIC SECTOR:

* MANUFACTURING PRODUCTION GREW AT AN ANNUAL RATE OF 8% IN 1ST QUARTER
In the 1st quarter of this year, manufacturing production grew by an estimated annual rate of 8%, compared to 2% growth in manufacturing production for 1997 as a whole. Most of the increase in manufacturing production was due in an increase in manufacture exports, which grew by an estimated annual rate of 16% between January and April 1998 according to Central Bureau of Statistics based on preliminary data (at fixed prices) on manufacturing production at industrial enterprises which employ wage-earners (not including the diamond sector). The largest increase was made in the mining and quarrying, textile, chemical, electrical equipment and electronics components and electronic communications sectors. The total value of exports for the 1st quarter amounted to $5.4 billion, of which 71% was industrial exports (diamonds excepted), 23% diamond exports and 6% agricultural exports.

It was further reported that the number of actual work hours for wage-earners grew by an annual rate of 3% in the 1st quarter, while the number of wage-earners remained unchanged.

The rate of increase was calculated on the basis of "trend" data (according to "the Henderson method"), on the basis of fixed-price data, and after deducting the influence of seasonal factors, and taking into account the number of holidays and working days.
(www.cbs.gov.il)
Central Bureau of Statistics - David Neumann, 972-2-6553400

* TEL AVIV STOCK EXCHANGE RESULTS IN 1ST HALF OF 1998
The value of stocks and convertible bonds on the Tel Aviv Exchange rose by 6.5%, the Tel Aviv 100 and Maof-25 Indices each rose by 7.5%, the "Other stocks and bonds" rose by 2.5% in real terms during the first half of 1998. The CoL linked bonds index dropped by 4.5% and the unlinked bonds index rose by 5.5% in real terms over the same period.
(www.cbs.gov.il)
Central Bureau of Statistics - David Neumann, 972-2-6553400

* CONTINUED DECLINE OF IMPORTS PRICES IN 1ST QUARTER
Prices of imported goods declined by 3% compared to the same period in 1997 as calculated in current US Dollars. The sharpest decline was for oil prices (18.5%), while diamonds remained steady. Prices for remaining goods declined by an average of 1.8%. Durable consumer goods prices fell by 5%, and food, clothing, footwear and household maintenance goods fell by 3.5%, compared to a rise of 1.4% for all goods for the contrasting period in 1997. Prices for investment goods (cars, equipment and public transport) fell by 2% and raw materials (except for oil) fell by 0.8%.
(www.cbs.gov.il)
Central Bureau of Statistics - David Neumann, 972-2-6553400

* STOCK EXCHANGE PRIVATIZATION 1987-1998
Half of the sums the government has received from the privatization of government companies derived from the their sale on the stock exchange. the public has invested approximately $3.2 billion in such companies' stocks between 1987 and 1998, according to Tel Aviv Stock exchange Spokesman. In comparison, revenue from the sale of stocks not listed for trading have been relatively insignificant. As of May 1998, despite the scale of privatization, the State continues to hold over a 50% share in 5 privatized companies for a total share value of over $6 billion, which signifies the potential of offerings on the exchange in later privatization stages.