ISRAELI MARKETS STABLE IN FACE OF SHARON CRISIS

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 000056

SIPDIS

E.O. 12958: DECL: 01/04/2016
TAGS: ECON EFIN ETRD ECONOMY AND FINANCE GOI INTERNAL
SUBJECT: ISRAELI MARKETS STABLE IN FACE OF SHARON CRISIS

Classified By: Economic Counselor William Weinstein for reasons 1.5 b a
nd d.

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Summary
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1. (U) The Israeli financial markets reacted to the news of
Prime Minister Sharon's stroke with less severity than might
have been expected. The shekel depreciated by a little over
one percent, and the Tel Aviv Stock Exchange (TASE) declined
less than four percent after being down by more than six
percent in the first few minutes of trading. A Bank of
Israel (BOI) press statement stated that Governor Stanley
Fischer and Acting Prime Minister Olmert spoke this morning
and agreed that the GOI's budget and monetary policies would
remain unchanged. This statement had the desired effect and
moderated the early losses. Throughout the day, various
prominent economic players issued statements stressing the
positive fundamentals of the Israeli economy and noting their
expectation that the policies of the Sharon government of the
last three years would be maintained. End Summary.

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Fischer, Olmert Agree that Economy is Strong
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2. (U) At the end of trading on January 5, the
Representative Shekel/Dollar exchange rate was set at NIS
4.628, a decline of 1.11 percent from yesterdays rate of NIS
4.58. The shekel reached its low in the 4.64 range shortly
after trading opened, but gained some strength after a press
release by the BOI announced that Governor Fischer and Acting
PM Olmert had spoken and agreed that budget and monetary
policies would continue unchanged. The press release further
noted that they stressed that cooperation between the BOI and
the MOF would continue, that the markets are functioning
well, considering the circumstances, that the economy was
stable and strong, and that the BOI would continue to monitor
developments. The preliminary 2005 growth figures published
by the Central Bureau of Statistics on January 1 indicating
that 2005 GDP growth was 5.2 percent and that GDP per capita
growth was 3.3 percent provided positive context for this and
other statements which followed and reaffirmed confidence in
the strength of the economy. Throughout the day, other
financial analysts weighed in, including foreign exchange
analyst Adam Reuter, who told "The Marker" that despite the
political uncertainty that would affect the markets, he did
not think that the shekel would depreciate appreciably.

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TASE Drops Off of New Highs
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3. (U) In the first few days of 2006, the TASE hit new
highs. The Tel Aviv 100 (TA 100) hit a high of 856 and the
Tel Aviv 25 (TA 25) 849 at the close on January 4 - before
the PM's stroke. On January 5, they closed at 822 and 816,
respectively, smaller losses than expected. The trading
volume of NIS 4.1 billion was extremely high, the highest
ever according to market analyst Tsvi Stepak, who was quoted
in the media. When trading resumes on Sunday January 8 after
the weekend, it will be possible to get a somewhat better
idea of the market's more considered view of the situation.


4. (U) In an interview on Israel Radio, Director of the TASE
Yair Ogler said that he did not expect foreign investors to
panic and pull their money out of the country, He said that
the basic economic statistics are good and that there is no
reason to think that the economic situation will change. He
noted, however, that investors will need time to evaluate the
situation.

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Business Leaders Express Confidence in the Economy
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5. (C) In a telcon with Econ Counselor, Gus Felix, Citigroup
Israel's Managing Director, said that Citigroup had full
confidence in the Israeli economy and markets, and had issued
a public statement to that effect. He said that foreign
investors had been prepared to take profits after the recent
run up in the market in any case, and that any decline in the
markets was as expected. He noted that business is going on
as usual with orders being filled. He added that Citibank
had reviewed its Israel portfolio and saw no particular
economic problems going forward.


6. (U) Manufacturer's Association President Shraga Brosh
told Israel Radio that the business community supports the
GOI's economic policies, and that those policies would
continue. He said that there is no reason to worry about the
markets, which will shortly return to normal. He emphasized
that the business community will do all it can to maintain
economic stability.


7. (U) In another Israel radio interview, Uriel Linn,
President of the Federation of Chambers of Commerce, said
that the business community has full confidence in the Acting
PM and the economic policies of the government. He said that
Israel's economy benefited significantly from the involvement
of PM Sharon, but that the responsible and professional
management of the BOI, the MOF, and other ministries involved
in economic issues would continue to ensure that the economy
would perform well.



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