What's the point of Israel Bonds? This is a question that the Israeli public has been asking for at least the past 40 years. Back in 1986, for example, MK Dan Tichon asked how much the organization costs the State of Israel, which raises money from US Jewry. Until today there has been no clear answer to the question. As Israel Bonds is a broker and dealer registered in the US, the salary costs of its staff are not published in the official reports of the State of Israel.
Debt which is expensive to raise and not worthwhile
The main problem is that Israel Bonds is an expensive debt raising instrument that is not worthwhile. The State of Israel is committed to paying the purchasers of the non-tradeable bonds distributed by Israel Bonds, an interest rate that is significantly higher than that paid on bonds on the capital markets. According to the Israeli government's financial report for 2019, half of the debt of Israel Bonds bore fixed dollar interest rates of between 3% and 4.8%.
State of Israel Bonds was founded in 1951 by then Prime Minister David Ben Gurion. The fledgling Jewish State did not have access to international capital markets and so Ben Gurion created an alternative track, so that any generous American Jew could lend the State of Israel any amount starting from $18.
But 2021 is not 1951. Israel is now rated as a developed and rich country, with the world's capital markets chasing after the Ministry of Financial officials in the Accountant General's office responsible for raising debt. In an article published in "Israel Hayom" last year calling for the closure of Israel Bonds, former Deputy Minister of Finance Yossi Beilin revealed that most Israel Bonds holders today are American banks and financial institutions exploiting the high interest that Israel Bonds pays.
So why hasn't Israel Bonds been shut down yet? The reason is that it greases the palms of Israeli politicians because Israel Bonds finances lecture tours of the US for them and their spouses, according to Beilin. Dan Naveh, who was appointed Israel Bonds President earlier this week and brings to the job an impressive record in the private business sector, and an extensive network of connections from his political career, will have no difficulty in perpetuating this tradition.
Despite all this, there are serious people who think that Israel Bonds still has a role to play. Firstly as an alternative channel that could serve a vital function in supporting Israel in an emergency situation. Secondly, as a channel that connects Israel with the increasingly more remote Diaspora.
But even those who advocate for Israel Bonds believe that there is no justification for allowing the organization to operate inefficiently and without close supervision, wasting public money on fat salaries and perks for politicians, while raising debt with an interest rate that Israelis can only dream about.
Published by Globes, Israel business news - en.globes.co.il - on June 22, 2021
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