"This isn't a happy event, but neither is it an event that will have a macroeconomic effect on the economy. This is a single incident, and no financial institution is threatened. The risk here is 1%, or less, as far as pension savings are concerned. There is no risk to the economy or to the public's pension savings," said Minister of Finance Yuval Steinitz today in response to the statement by Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY) that it would have trouble paying its debts.
Steinitz spoke at a Ministry of Finance press briefing on the economy. This was the first of the monthly briefings that the ministry will now hold.
Steinitz said, "We predicted the possibility of such events. On April 23, we made our policy clear in the economic plan. We said what we'd do, and especially what we would not do. The government will not intervene in borrower-lender relations, and especially not in cases of failure to repay bonds. We made it clear that we will not intervene in such cases. This greatly increased certainty in the market, and the non-bank credit market began to recover afterwards. This policy will not change."
Steinitz added, "The Bank of Israel said yesterday that there is no threat to the banks' stability, and I trust that. I say here: we do not see any concern about the stability of the institutional market. The economy is healthy and proper policy will enable it to withstand shocks."
At the press briefing, the Ministry of Finance said that it would publish a new economic index, to be called "Red Lights", which will compete with the Bank of Israel's State of the Economy Index. The new index will track the economic position and will be a new tool that will monitor economic reality.
Steinitz said, "We saw the need for real-time monitoring. The index will include nine macroeconomic variables (taxes, foreign trade, the labor market, price stability, the capital market, international indicators, real estate, and mood), each of which will give a comprehensive picture of the economic climate and changes in it."
Steinitz added that the July Consumer Price Index (CPI) already reflected the beginning of economic recovery and also strengthened the feeling that "the worst is behind us, but the road to health is still long and it will take time and effort."
Ministry of Finance director general Yarom Ariav said, "The key is to spot a turnaround. This is why we're calling the index 'Red Lights' - to spot change in real time. The July CPI indicated cautious optimism, but it's premature to say that spring is here."
During the questions and answers session, Steinitz was asked about a possible update to growth forecasts. "We don’t update the forecasts every month. We're in no rush to make updates. The direction appears to be right, and we're happy to receive forecasts, but it will take time until we update our own."
Published by Globes [online], Israel business news - www.globes-online.com - on August 31, 2009
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