Exporters turn to Treasury for exchange rate help

The anticipated end of the Bank of Israel's dollar purchase program worries exporters.

Sources inform ''Globes'' that, in expectation that the Bank of Israel will end its dollar purchasing program, the Israel Export and International Cooperation Institute last week asked Minister of Finance Yuval Steinitz to continue, and even expand, the ministry's foreign currency hedge transactions - swap and forward deals - on Israel's foreign debt in order to strengthen the dollar in terms of the shekel.

A weaker shekel helps exports by making them cheaper in foreign currency terms.

The sources added that exporters are worried that the shekel-dollar exchange rate will plummet (representing a stronger shekel) after the Bank of Israel stops its program of buying $100 million a day. In recent weeks, exporters have approached several financial institutions that specialize in foreign currency in order to obtain projections on the exchange rate if the Bank of Israel ends its program. The results, unsurprisingly, were discouraging: they predict that the shekel-dollar exchange rate could fall to NIS 3.50-3.60/$.

The Export Institute therefore asked Financial Immunities Ltd. for a position paper, which proposes alternatives to the present policy to Israel's economic leaders. "Globes" has obtained a copy of this position paper, which concludes that there is little ammunition left in the magazine. The main proposal is to continue the foreign currency swap and forward deals. The Ministry of Finance Accountant General has already made $1.5-2 billion worth of such deals on Israel's external dollar debt in an effort to boost the shekel-dollar exchange rate.

The Ministry of Finance is not enthusiastic about the Export Institute's proposal. "We must not play with the external debt in order to defend the dollar. When we hedged at an shekel-dollar exchange rate of NIS 3.20/$, it was clear to us that we'd make a profit, and we made a profit of hundreds of millions of dollars, but we cannot gamble," said a senior ministry official.

Published by Globes [online], Israel business news - www.globes-online.com - on July 27, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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