Note: The translations of articles from the Hebrew press are prepared by the Government Press Office as a service to foreign journalists in Israel. They express the views of the authors.
FRENKEL HELPS GRAHAM MOSS, AT LEAST FOR NOW
(Excerpts from article by Guy Rolnik, "Ha'aretz", Aug 17, 1998, p.17)
Can the economy extract itself from recession on its own, or does it need
a push from the government? Can the private sector rescue the wagon from
the mud on its own, or must the State intervene on its behalf? Should the
government fund, subsidize or initiate projects -- or just create
conditions of economic stability?
Each day, economists around the world ponder these questions, whose
multiple strains and variations are now being debated by the Israeli
government and Netanyahu's "economic council".
The answers are complex. At times, government intervention is a clear
necessity; in other instances, the government would do best to stand back.
There are economists who believe in a greater government role, and there
are sworn advocates of free market economics -- who believe that almost
anything governments can do would be better undertaken by the private
sector.
On 16 August, without many headlines or much attention, the private sector
and Israel's free market economy provided one of the prominent displays of
power and strength in Israeli economic history.
A group of international and local banks -- none of which can be accused
of harboring non-economic considerations -- signed an agreement granting a
NIS 2.3 billion loan to one of the largest and most expensive
infrastructure projects ever implemented in Israel.
The loan was given neither to the government, nor to municipalities or
other dependent bodies. It was not even granted to economic concerns
intending to conclude contracts and agreements with the State. The entire
agreement involves banks, nearly all private, and a series of private
entrepreneurs from the Israeli and international business sector.
What is even more interesting is that the banks did not make their loans
contingent upon any guarantees, securities or assurances (written or oral)
from the government. They examined the company's business plan, researched
industry conditions and studied Israel's economy -- and then decided to
grant the NIS 2.3 billion loan.
In banking jargon, this is called "non-recourse" -- which means that the
borrowers do not offer any assets or guarantees as security against the
loan. The only security is the project's cash flow; in this instance, the
company in question is Partner, Israel's third cellular phone operator.
As such, the only security that the project's backers brought before the
banks was "economic" in nature: 1) a strong Israeli economy which, despite
the slowdown of the past two years, is still blessed with many large and
profitable companies; 2) a rapidly expanding telecommunications
industry;
3) a developed consumer market with a demonstrated appetite for
innovations and new products, and; 4) a professional group of
entrepreneurs with a proven ability to develop profitable and competitive
businesses.
We have quickly become accustomed to the revolution which has overtaken
the Israeli economy and private sector in the past decade, but the ability
of the Partner Group to raise $650 million from foreign and local banks --
on credit and without securities -- for the sake of creating a new company
in a competitive market is a significant matter.
It reflects the dramatic changes in Israel's international status, the
increasing involvement of foreign investors in Israel and the adoption of
international finance models by the Israeli banking establishment.
For comparison, it is worth recalling that, exactly ten years ago, a group
of Israeli entrepreneurs began the process of raising capital for cable
television -- a private telecommunications project which was, at the time,
the largest in the history of Israel's economy. While Partner is entering
a competitive market with a heavy financial burden already on its balance
sheet -- the $400 million paid to the State of Israel for its franchising
license -- cable television companies entered an industry that was
declared a complete monopoly from the outset.
And yet, the cable television companies were forced to fund the project
with private capital, through personal loans and shareholders' guarantees.
In the early 1990s, they had invested approximately one billion dollars in
infrastructure and start-up expenses. In retrospect, this was clearly one
of Israel's most successful investments, but the project's backers had
assumed all the inherent risk out of necessity and not by choice. If any
of them had then asked the banks for a line of credit based upon "expected
cash flows," or had they tried to raise capital from international banks,
it can be assumed that they would have been deemed insane.
$250 million of the $650 million raised by Partner was provided by a
consortium of American and European banks, including Chase Manhattan, ABN
AMRO, Sumitomo and Citibank. The balance came from Bank Hapoalim and Bank
Leumi.