Jerusalem---- February 23..... Israel's international ratings improved following positive trends in its economy in 2004, said Michael Cherney. Cherney, who works on establishing stronger economic ties between Israel and Russia, has always praised Israel's economy and the growing trade between Israel and Russia.

"Inititally beauracracy and stereotypes on both sides seemed to be slowing the process, but now the bilateral trade is estimated at some US$1.5 billion a year and is grwoing fast", says Cherney. "To a large extent it can be attributed to Russian-Israeli businessmen who are the excellent bridge-builders".

Cherney noted that in January 2005, Standard & Poor's Ratings Services raised its outlook for Israel from negative to stable and affirmed Israel's 'A-/A-1' foreign currency and 'A+/A-1' local currency ratings. According to S & P credit analyst David Cooling: "The revision of the outlook reflects the narrowing of the budget deficit in 2004, prospects for medium-term fiscal consolidation underpinned by the U.S. loan guarantee program, renewed economic growth, and a significant improvement in the balance of payments. At the same time, geopolitical risks have also stabilized, following a reduction in the level of violence, and the prospect of a new Palestinian leadership to reinvigorate the stalled peace process."

In February 2005, Fitch Ratings revised the outlook on Israel's long-term local currency rating from negative to stable. It also affirmed the long-term local currency rating at 'A', the long-term foreign currency rating at 'A-', outlook stable, and the short-term foreign currency rating at 'F1'. "The improved local currency rating outlook reflects a decline in Israel's public debt ratio in 2004 and better medium-term debt dynamics," said Richard Fox, Senior Director in Fitch's Sovereign team. "Demonstrable spending control and a political commitment to spending restraint and deficit limitation lead Fitch to conclude that the debt ratio has at least stabilised and will probably trend down in the medium-term, albeit gradually. This marks a significant, if not decisive, turning point in Israel's public debt dynamics."

Once a traditional economy based mainly on agriculture, light industry and labor-intensive production, Israel has matured into a knowledge-based economy with internationally competitive telecommunications, IT, electronics, and life sciences industries. As a result of its small size and limited natural resources, Israeli industry is export-driven and capitalizes on a highly skilled, educated and innovative workforce. In addition, Israel serves as a trade bridge to three continents with Free Trade Agreements with the US, the European Union, Canada, Mexico, EFTA nations, and many Eastern bloc countries. These factors, as well as a highly developed infrastructure and investor-friendly business environment, are attracting foreign investors.

Foreign investment increased dramatically in the 1990s with the growth of the high-tech industry. In 1992, total foreign investment in Israel was $537 million; in 2004, that figure was $5.3 billion. Israel also became a magnet for venture capital to invest in Israeli start-up companies. International high-tech firms have been eager to set up shop in Israel, attracted by the country's skilled workforce, R&D capabilities and government-sponsored incentive programs. US companies continue to establish offices and subsidiaries in Israel and to expand existing facilities.

The Israeli economy in 2004 GDP increased by 4.2 percent in 2004 (following an increase of 1.3% in 2003 and a decrease of 0.7% in 2002) and business-sector product by 6 percent, against the backdrop of economic recovery worldwide and a certain easing of the security situation in the region. This growth was accompanied by a rise in employment, mainly in the business sector, reflecting a moderate downward trend in unemployment, from a peak of 10.9 percent in the third quarter of 2003 to 10.2 percent in the third quarter of 2004, alongside a rise in the participation rate in the labor force and a rise in labor productivity.

As Michael Cherney praises the Israeli market he takes a concerned look at the majority shareholders of Russian Aluminum (RusAl), one of the world's top three aluminum producers, claim a debt estimated to be over $1 billion from the company's current owner Oleg Deripaska, and believe he has failed to abide by signed obligations.

Deripaska was brought into RusAl by veteran international metals industrialist Michael Cherney, who has lived in Israel since 1994. According to the respected Russian business newspaper Vedomosti, in 2001 Deripaska acquired Cherney's 40% share of the company through a $250 million initial payment. Deripaska committed to pay Cherney no later than in five years the current value of 20% of RusAl stock, minus the $250 million already paid, according to the newspaper.

"We still have a year to go," Michael Cherney was quoted as saying, "I am counting on Oleg Deripaska to pay me and other partners what was agreed on." Sources close to Michael Cherney suggest the tycoon was motivated to call attention to the debt in light of analysts' reports that the Russian Renova company recently offered to buy Deripaska's RusAl holdings for between $2.5-3 billion.

According to Vedomosti, current RusAl values would put the Deripaska obligation to Cherney in the range of $900 million to $1.75 billions. Brunswick UBS estimates the entire company to be worth $5.5-10 billion, with the 20% package thus estimated at up to $2 billion. Aton evaluates RusAl more modestly, between $7-8 billion. RusAl insists that its stockholders owe nothing to the ex-partner. Russian and Israel attorneys familiar with the agreement reportedly feel Cherney's case is a convincing one, should it reach litigation. Boris Berezovsky, another Russian tycoon residing in Britain, who owns a 15% share in RusAl, has also reportedly expressed skepticism over Deripaska's failure to abide by certain business agreements.

ISRAEL NEWS AGENCY