Wnai Writh Michigan Regional Council

Presents

A Community•Wide Global Update

with
B'nai B'rith International's

Dan
Mariaschin
Dan is the Director of the

Department of International,
Governmental and Israeli Affairs.

Monday, April 24, 1995
Adat Shalom Synagogue, 8 p.m.

Refreshments

No charge

For more information call the B'nai B'rith Office

(810) 855-8580

Stuart Novick Edward Weberman Peter A. Perlman

Membership
Vice President

CA)

Council
President

Event
Chairperson

INFINITI.

of FARMINGTON HILLS

INFINITI°

(1) OF FARMINGTON HILLS

64

24355 Haggerty Road • South of Grand River

(810) 471-2220

Israelis Souring
On Falling Market

INA FRIEDMAN SPECIAL TO THE JEWISH NEWS

all Street Believes in
Tel Aviv" read the head-
line over a piece pub-
lished last weekend by
Sever Plotzker, Yediot Aharonot's
star economic analyst.
You could have fooled most Is-
raelis with that news, for the Tel
Aviv Stock Exchange had just
ended a virtually disastrous
month in which the Two-Sided
Index dropped to its lowest lev-
el in nearly three years. The
bond market was in even worse
condition.
On one day last week, the vol-
ume of trade was so low that tele-
vision cameras caught the
usually frenetic traders lazily
browsing through newspapers at
the height of the work day.
What brought on "Black Feb-
ruary"? Probably accumulated
disappointment more than
anything else.
The fact is the Tel Aviv Stock
Exchange has been on the slide
for over a year now, after experi-
encing a heyday between 1990
and late 1993. During that peri-
od stock prices were often driven
up through speculation, and the
actual value of the shares was
highly inflated.
Just before last year's down-
turn, Bank of Israel Governor Ja-
cob Frenkel went so far as to
characterize the stock market as
an "inflated balloon."
But analysts generally agree
that the slump was inevitable
and merely brought a manic mar-
ket back in line with reality.
The steady decline throughout
1994 (mutual funds fell by 50 per-
cent) was only spurred by talk of
imposing a capital-gains tax on
market earnings. Even after the
government reversed itself on
that plan (in response to heavy
public pressure), investors pre-
ferred to move their money out of
the drooping market into short-
term savings linked to the cost-
of-living index.
But last month the market
outdid itself — to the point where
Rabbi David Basri, the head of
an Orthodox yeshiva, actually led
a day of special prayer for the
stock exchange.
Worse yet, the country's many
small investors who had been
steadily saving for retirement
through tax-free provident funds
(with assets of some $32 billion)
discovered in February that be-
cause of the drop in the stock
market, these popular funds had
suffered real losses of 8-9 percent
in 1994.
A single year's losses in a long-
term investment need not be
cause for alarm. But coupled

with the generally down mood
about the market, the result was
a mini-run on the provident
funds, with about $1 billion be-
ing withdrawn in February alone.
To pay off their panicky in-
vestors, the providents had to sell
long-term bonds (some 85 per-
cent of their assets). That, in
turn, drove bond prices down,
which only made the funds less
attractive, encouraging more
members to drop out. The spiral
continued until the Bank of Is-
rael finally intervened to shore
up the bond market by buying
up $100 million worth of long-
term bonds.
A Bank of Israel spokesman
now says the February panic had
passed. But the fear remained
that the providents may still face
withdrawals of up to $600 million
in March, which would reheat the
crisis all over again.
It was just as these trends
came to a head that the good
news appeared from across the
ocean. It didn't send the market
shooting up again, but it did raise
the question: If Israelis are feel-
ing so down on the Tel Aviv Ex-
change, why is Wall Street so
sanguine?
The main reason is because
they're looking at different things.
"The people on Wall Street are
looking at the overall Israeli econ-
omy," says David Rosenberg, di-
rector of research at Pacific
Mediterranean Investments in
Herzlia Pituah. "And that's been
growing rapidly ever since the
start of Soviet immigration and
the end of the Cold War, which
opened markets in Eastern Eu-
rope, the Soviet Union, and the
Far East, so that exports grew
over 40 percent from 1991 to
1994."
What's more, the Israeli Trea-
sury forecasts have the growth
domestic product growth rate
continuing at an average of 5-6
percent over the next five years.
At the same time, the old Is-
raeli bugaboo of inflation —
which jumped to over 14 percent
in 1994 — has started to come
down again as a result of the high
interest rate (now 16.3 percent)
set by the Bank of Israel (which
is unpopular locally but praised
by experts abroad).
Unemployment has also been
lowered substantially, from a
high of 11.2 percent in 1992 to 7.5
percent in the last quarter of
1994. And the privatization of
state-owned companies contin-
ues (though still more slowly than
many experts would like).
"The result of these trends is
that in 1994, international mu-

