By Israel News Agency Staff

Jerusalem, Israel --- September 8, 2008 ..... Part of the following was communicated by the Israel Cabinet Secretariat to the Israel News Agency.

According to CNN, the Israel economy "has done remarkably well for a country involved in a prolonged and violent political struggle over the Palestinian territories." CNN continues: "There are 3,361 high tech companies operating in Israel as well as 150 foreign research and development centers. The Israel economy grew more than five percent in 2007 faster than the U.S., Europe, UK and Japan.

"The Israel economy has managed to develop a kind of isolation from the political instability," says Yossi Mekelberg, Associate Fellow of the Middle East Program at Chatham House.

"It's almost isolated, mainly because it's based on hi-tech, pharmaceutical industries, and chemicals, and I think these are the things that are less conditioned by the political situation."

It is documented fact that Israel spends a greater percentage of its GDP on hi-tech research and development than any other country. It's also a documented fact, that one out of four children live in poverty in Israel.

According to the Israel Venture Capital Research Center, 3,361 hi-tech companies are operating in Israel. And they're attracting foreign interest and dollars. In the first three quarters of 2007, they raised more than $1.2 billion dollars in funding, 10 percent more than the same period the previous year.

But one must ask, what are the wages being paid to these workers? And what percentage of the Israel public is working in hi-tech?

Yossi Vardi, who has helped more than 40 Israel startups get off the ground, among them Mirabilis (makers of ICQ) and the video companies Scopus and BrightCove and is a strategic advisor to Amazon and AOL, and a venture partner of Pitango, one of Israel's largest VC funds states that he backed his first technology business almost forty years ago and has so far lent his expertise to 65 fledgling companies.

"Our strength on the food chain is usually in the very early stages where you have to come with ideas, innovation and take great risks," says Vardi.

"The hi-tech industry is not a monolithic thing. In China, they do manufacturing. In India, they do coding. We are very good in the early stages, like Silicon Valley. And this is what the world is looking for in Israel."

Vardi provides an excellent service in projecting a strong image of Israel for investment. But what does Vardi have to say about addressing massive poverty in Israel?

"Israel is sending a dangerous double message. On the one hand we are telling foreign investors to look at us and see how strong we are. On the other hand, as the majority of families in Israel simply struggle to survive, humanitarian charities must now decide what is PR and what is true economic reality in Israel?" - Israel News Agency

Yossi Mekelberg from the foreign policy think-tank Chatham House says a deal would create economic benefits for both sides of the divide.

"I think the direct benefits of a peace agreement would be immense, both for the Israelis and the Palestinians," he says.

"When there is a peace agreement there will be more investment. The European Union, the United States, and others will investors will pour more money, as happened post-1993. And also, let's bear in mind there will be an extra growing economy that has more than four million people, the Palestinian economy, so, a peace dividend can be only positive.

But while CNN and The Economist forecast sunny days ahead, the Israel business publications Globes states that a global economic slowdown will support the US dollar and an economic slowdown in Israel.

Globes states that a global economic slowdown will cause the dollar to become a safe haven. US Treasury bills are considered the safest asset in the world, and you need dollars to buy them. At the same time, both households and companies will need liquidity, and the best way to achieve it is by holding dollars.

"Despite holding on for a bit of time, Israel's economy appears, as well, to be sliding toward a significant economic slowdown," says Ronen Menahem, the head of strategy and investments at Mizrahi Tefahot Bank.

"I therefore predict that the shekel will depreciate against the dollar in line with other currencies, and that a shekel-dollar exchange rate of NIS 3.60-3.80/$ is likely in the short term with a breakthrough upwards towards year-end.

Globes states that it has not forgotten two factors that are affecting foreign currency trading, but excludes them from the calculation because I believe that they will have little influence on exchange rate volatility in the short term. The first is financial - the new OECD assessment that a large part of the problems in the financial sector are already behind us, and that the slump in this sector is nearly over. However, the financial sector's difficulties have spread to the rest of the economy and we'll have to deal with this.

The second factor is prices. That the sharp rise in prices will quickly abate because the global economy is facing a slowdown to one extent or another."

Yet, Bloomberg sees another picture.

Bloomberg states that Israel's gross domestic product grew faster than expected in the second quarter, as booming chemical and fertilizer sales drove exports.

The economy expanded at a 4.2 percent annualized rate in April-June, the Jerusalem-based Central Bureau of Statistics said in an emailed report today. That beat the median forecast of 4 percent from five economists surveyed by Bloomberg. Still, growth was the slowest since the 2006 war in Lebanon, easing from 5.6 percent in the first quarter.

"A 4.2 percent rate doesn't really amount to a slowdown, it's actually a good pace of growth,'' says Vered Dar, an economist at Psagot Investment House Ltd.,. "There will be real slowdown in second half.'' Today's figures don't include "anything that changes my expectations,'' he said.

Israel's economy this year will probably expand at its slowest pace since 2003, with the Bank of Israel in June forecasting growth of 4.2 percent. That would still leave Israel ahead of the world's developed economies, which the International Monetary Fund said July 17 will grow 1.7 percent this year.

Exports of goods and services grew an annualized 6.6 percent in the quarter, slowing from 11.2 percent in the first quarter, the bureau said. Imports of goods and services dropped at an 8.6 percent rate, the first decline in five quarters.

Consumer spending fell at a 3.6 percent annual rate, compared with an increase of 9.3 percent in the previous month. The decline in consumer spending was led by a 46 percent annual decline in purchases of durables, such as electronics, following two quarters of double-digit growth.

"The first quarter's growth rate was very, very strong, so this past quarter we saw something of a correction,'' Eyal Raz, head of economics at Bank Leumi Le-Israel Ltd., said by phone. "The pace of consumer spending growth in the first quarter wasn't sustainable.''

At the weekly Israel government Cabinet meeting yesterday, Israel Prime Minister Ehud Olmert drew ministers’ attention to an article in The Economist, considered the most important economic weekly in the world, which refers to the Israel economy as the most successful in the world. The Prime Minister said that, “We know that the economy of Israel is successful. The international perspective, when a journal like The Economist presents the Israeli economy as the most successful in the world, is not insignificant."

Olmert continued: "It seems to me that we are entitled to commend Israel Finance Minister Ronnie
Bar-On, and to all those involved in guiding the economy, for this achievement. I think that this is an exceptional moment. There have been many situations in the past 60 years in which the Israeli economy has been seen as improving. There have also been difficult situations. But never have the most senior, the most authoritative and the most objective international elements, that have never been known for their over-fondness for the State of Israel, crowned the Israel economy as the most successful
in the world.”

The Israel Cabinet yesterday approved procedures for the functioning of the Government
during emergencies, effective immediately. The Winograd Committee discussed the Government’s decision-making process in time of war. The Committee members proposed that decision-making
procedures be established so as to enable the political leadership to have a full and correct picture of the emergency situation. Former IDF Chief-of-Staff Lt.-Gen. (ret.) Amnon Lipkin-Shahak chaired a steering committee on implementing the recommendations of Winograd Committee’s interim report the
steering committee also recommended that procedures be determined vis-a-vis government decision-making in times of emergency.

The Israel Cabinet also addressed rental protection. The Cabinet stated that pursuant to the 1972 Tenant Protection Law, the Cabinet had approved various tenant protection regulations for 2008.

In addressing tenants rights, the Cabinet realizes that although they boast about a booming economy, many in Israel have serious problems paying rent. That one out of four children live below the poverty line and the basic wage in Israel is about 1,200 USD per month. Over 90 percent of Olim from North America, the UK and France leave Israel within 3 to 5 years as they either cannot find employment or are under employed.

Israel brain drain has become a very serious issue with more Israelis now living in the United States than those who live in Israel. That the majority of Israel's most respected companies which export goods and services are registered in the United States, Europe and off shore, the growing black market all speak volumes as to the lack of tax and investment incentives in Israel and the very real and true state of Israel's economy.

It is critical that the Israel government projects a strong and positive picture of the economy in order to attract foreign investment. At the same time, the Israel government and those Israel ministers who earn thousands of dollars in their positions, should not swallow all of the economic public relations spin.

The economy is good, but at what cost to the average Israeli?

The Ariav Committee for capital-market reform is seeking across-the-board tax exemptions for new immigrants, returning Israelis and foreign investors to create a financial center with a competitive tax structure for finance professionals and to be a catalyst for the export of financial services.

"Tax exemption should apply to new business generated inside and outside of Israel to encourage business in Israel," he said. "This is a good time to bring back Israelis and encourage Aliya of top-tier finance professionals and investment managers when around the world finance professionals are being laid off. We are getting five to 10 calls a week from finance professionals overseas looking to come here."

The Ariav Committee, headed by Finance Ministry director-general Yarom Ariav, has in recent months been faced with much skepticism, mainly because of Ariav's vision for turning the local financial industry into a global financial center resembling London, New York or Singapore, which has been hailed as a daydream at best.

"It is not about being another Singapore or London," said Ariav. "We have to develop our own model and build up a sophisticated and advanced capital market, with the aim of creating a financial center in the Middle East."

The idea is to repeat the country's success in building up an innovative hi-tech sector and establish Israel as an international financial center - and for finance to become a leading growth engine for Israel's economy. Ariav's goal is to turn Israel into one of the 10 leading financial markets within 10 years, and boost the financial sector to 10 percent of gross domestic product, from the current 4 percent.

The committee is also recommending the establishment of a court specializing in economic affairs. The proposed court would be a separate entity, run under the auspices of the Tel Aviv District Court. The members of the committee believe that the inefficiencies of existing courts stem from the judges' lack of understanding of complicated financial matters, which are a major obstacle in the country's attempts to improve its financial system and to become an international financial center. Such a court would have another advantage, as it would enforce the training of judges specializing in economic matters, and would greatly improve the efficiency of the legal system in such matters.

The Ariav Committee includes Supervisor of Banks Rony Hizkiyahu, Supervisor of Insurance and Savings Yadin Antebi, the Israel Securities Authority chairman, the deputy governor of the Bank of Israel, Prof. Zvi Eckstein and other experts in academia and finance. It is expected to submit its recommendations for attracting greater foreign capital and for developing the local market into more of a competitive global player by the end of August.

Israel is sending a dangerous double message. On the one hand we are telling foreign investors to look at us and see how strong we are. On the other hand, as the majority of families in Israel simply struggle to survive, humanitarian charities must now decide what is PR and what is true economic reality in Israel?

The Israel News Agency strongly suggests that both Jewish and Christian charities increase their donations to the children of Israel. But of greater potency, these Jewish and Christian charities should help create jobs in Israel through reinforcing the outsourcing of work from the US and Europe to Israel.

If United Jewish Communities (UJC) or Christian Charities have any doubt as to the critical needs of the average Israeli, all they need to do is visit Ben-Gurion airport and witness the steady stream of those Olim who made Aliya and native Israelis running for the US or Europe where jobs are far more abundant, taxes are less and wages are four times as high.

The above news content was edited and SEO optimized in Israel for the Internet by the Leyden Communications Group.

Support Israel with a Birthday Card!