Two-Way Street

Bond Bits

Israel Bonds continue to provide
value for Israel and value for Jews
in the diaspora, says Larry Wolfe,
general chairman of Metro
Detroit Israel Bonds.
"We feel it is still a very viable
source of revenue for the State of
Israel," says Wolfe, "and is impor-
tant politically in the United
States."
In 1998, Metro Detroit Israel
Bonds sold $10.7 million in
Bonds to 1,900 subscribers. In 1999, the totals went
up to $12 million in sales to 2,200 subscribers.
In Israel, says Wolfe, Bond funds have no political
strings. The Bond revenue helps the country's infra-
structure and the economy. In the United States, he
says, Bond purchases send an important signal to
Congress.
'Congress looks at Bond sales as a measure of sup-
port for Israel," Wolfe says. "There would be a feeling
in Congress that if Jews feel they don't have to sup-
port Israel, maybe we don't have to either."
He says Bonds are a way for Jews to support Israel
"beyond the 4, 5, or 6 percent return" on the Bond
investment. The new Chai Bond, purchased for $136
and redeemable five years later for $180, is a way to
connect the younger generation with Israel. Wolfe
says the new issue is very popular as bar and bat mitz-
vah gifts.
— Alan Hitsky,
Associate editor

• Israel Bonds, like bonds pur-
chased anywhere, are essentially a
loan. An investor agrees to supply
a certain amount of money for a
fixed period of time, to be paid
back with interest.
• The idea for Israel Bonds,
which is an economic develop-
ment corporation that sells bonds
issued by the State of Israel, came
in September 1950, when Israel's
first prime minister, David Ben-
Gurion, met with 50 American
and Israeli leaders in the King
David Hotel in Jerusalem.
• The Knesset voted to launch
Israel's first bond issue in
February 1951. In March of that
year, Ben-Gurion launched a
bond drive at Madison Square
Garden in New York. That event
was followed by a coast-to-coast
U.S tour that eventually netted
$52.6 million.
• Money collected by Israel
Bonds has contributed to numer-
ous projects in Israel, including
the National Water Carrier; the
Trans Eilat-Beersheba pipeline;
the Dimona nuclear plant; and
the absorption of Russian and
Ethiopian immigrants.

water transport, ports, airports and
infrastructure for new communities.

General Ledger Support

However, Finance Ministry officials say
Israel Bonds money is not an example
of "designated giving." The funds are
actually funneled into Israel's general
budget. Much of the funds today ironi-
cally find their way back to the United
States — to repay outstanding debts to
previous bondholders.
Market experts agree that the
bonds have been important during
times of crisis. Yet as Israel continues
on its path toward peace, this may
become less critical.
"In the new environment which
Israel finds itself, with high credit rat-
ings, strong levels of direct foreign
investment and the high-tech revolu-
tion, we will probably find Israel
Bonds are going to become passe over
the next few years," said Neil Corney,
head of foreign exchange trading at

Bank Hapoalim, Israel's largest bank.
Corney added that Israel is likely
to find itself increasingly able to raise
capital on international markets at
more attractive rates than Israel
Bonds can offer.
Since 1995, the Israeli government
has secured a foothold in internation-
al markets in order to create alterna-
tive stable financing frameworks fol-
lowing the end of a $10 billion U.S.
loan-guarantee program in 1998.
As international credit agencies
lifted their ratings for Israel, the gov-
ernment took advantage to launch
major bond offerings on the Yankee
(U.S.) market, Eurobond market and
even the Samurai (Japanese) market.
In 1999 alone, Israel raised $600 mil-
lion in debt offerings on international
capital markets, while Israel Bonds
raised $900 million.

Options Grow

Meanwhile, the high-tech revolution

has also created new avenues of invest-
ment for Jews who prefer to support
Israel through noncharitable means.
With 100 Israeli companies listed
on the New York-based and technolo-
gy-heavy Nasdaq stock exchange,
investors can directly support Israeli
companies and, under good market
conditions, generate much better
returns than bonds.
Patt does not think this will create
a new obstacle to selling Israel Bonds,
since bond investments are always
safer than stocks.
"People who have a portfolio and
want to sleep well at night without
being totally dependent on Nasdaq
and the crazy figures on television
want a portion of their portfolio in
bonds, which is-a steady source of
income," he said.
To help ensure its future, Israel
Bonds must also continue to reduce
the costs of running the organization.
Patt has brought the budget down 15
percent to $39 million, as the

Finance Ministry requested.
Beyond economic and business
trends that could challenge the future
of the organization, Israel Bonds
advocates say the group has another
raison detre.
Since it targets individual Jewish
investors — it sold to 100,000 people
last year — the bonds help foster a
strong economic bond between Jews
in Israel and the diaspora.
Israel Bonds currently raises less
than 30 percent of its funds from
institutional sources, a figure that has
decreased since the early 1990s.
Yet in the long term, this advan-
tage alone may prove a difficult
means of defense against economic
fundamentals.
"The Finance Ministry does not
want to turn to the American Jewish
population and say, 'We don't need you
now,"' said Corney, the Bank Hapoalim
trader. "But Israel Bonds will have to
work much harder in the future — and
it may have to be phased out."

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6/30
2000

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