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Treasury under pressure to provide safety net for pensions
By Eytan Avriel
Tags: Israel news, economic crisis 

Thursday was a day filled with bad economic news - but the most dramatic event of the day proved to be the least significant. The drama was supplied by the Tel Aviv Stock Exchange, where the blue-chip TA-25 index, which had been trading down about 7 percent, suddenly plunged to a loss of 11 percent in the space of a few minutes.

Later in the day, however, it turned out that the entire drop was due to a single trader who temporarily lost his cool and placed a sell order worth tens of millions of shekels for every stock in the index. Following the 45-minute shutdown mandated by the bourse whenever it falls by 8 percent or more, the market itself corrected for the error.

The leading index ended the day down only around 5 percent, similar to the previous day's losses in the United States and yesterday's drop in Europe. TASE chairman Sam Bronfeld called it a tempest in a teacup, though even 5 percent drops are nothing to sneeze at if this rate of loss continues.
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Yet there was also a stream of worrisome economic data on Thursday - not only from the United States, as has become almost routine, but for the first time from Israel as well.

The Bank of Israel published a revised forecast predicting that gross domestic product would grow by only 1.5 percent next year, down from its earlier estimate of 2.7 percent. That translates into a decline in GDP per capita because Israel's population grows by about 2 percent a year.

The central bank also cut back its growth forecast for this year, a sign that the global crisis is already affecting our economy. It also raised its unemployment forecast for next year to 7 percent.

In addition, one of Israel's largest companies, Africa Israel, announced a loss of NIS 1.7 billion for the third quarter - the largest quarterly loss an Israeli firm has ever posted. The cause was a huge decline in the value of its real estate assets worldwide, alongside large financing costs.

The company's bonds, like those of other Israeli firms, also continued falling on Thursday. This translates into losses for the public because most provident, mutual and insurance funds invest in corporate bonds.

The corporate bond losses are increasing pressure on the Finance Ministry to submit a new emergency economic plan, on top of the one it unveiled earlier this week, that would provide a safety net for the public's long-term savings.

The Histadrut labor federation, leading industrialists and economists have been urging this step for some time, and they were joined Thursday by Foreign Minister Tzipi Livni, the Kadima party's candidate for prime minister. That puts Livni on a collision course with Finance Minister Roni Bar-On, hitherto one of her strongest supporters in Kadima.

The treasury remains opposed to any intervention in the capital markets at this stage, but treasury officials are starting to realize that it may be necessary at some point, and have begun examining options for providing such a safety net.

According to treasury sources, the current thinking is that a safety net would be granted only to people at or near retirement age, and therefore need their savings soon. For these people, the government would provide a minimum guaranteed return on their investments that would cover some of the losses of the past year, as well as some of the losses that night occur next year.

As for the bad news from the United States, this included a 20 percent plunge in shares of Citigroup, one of America's two largest banks, prompting fears that the financial crisis may worsen again after having briefly appeared to have stabilized. There was also a 30 percent plunge in shares of General Motors, virtually ensuring the venerable carmaker's demise, and news that new unemployment claims had hit a 16-year high.

Surprisingly, however, the dollar strengthened against other currencies, even briefly crossing the NIS 4 mark for the first time in a year before falling back to NIS 3.998.
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