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Finance Minister Benjamin Netanyahu said yesterday that things will get worse in the economy before they get better.

"There will be an initial difficult period, but afterward there will be quick and strong growth," the finance minister told a forum of CFOs from among the country's leading companies. Netanyahu reiterated his claim that the recent surge in stocks and bonds and the continued strengthening of the shekel - yesterday it hit another new recent high against the U.S. dollar at NIS 4.333 to the greenback - was due to the positive change in the government's economic policies. "No country in the world has done what we have done," he trumpeted.

"The money is starting to return to Israel. Foreign investors matter more than rating agencies," he told the conference, which was sponsored by the Israeli Management Center's forum of CFOs in Tel Aviv. "Our situation has changed compared with the global markets. Foreign investors expect better things for the economy over the next 12 months. The foreigners understand that the local economy has the potential to grow, and that what matters at the end of the day is not the level of science and technology, but the market's degree of openness to the global markets, and the level of entrepreneurship. The markets estimate that we are opening up the economy," Netanyahu said.

The minister and his Finance Ministry team have spoken out strongly in favor of cutting back the public sector and privatizing state-owned corporations. Two weeks ago, the government floated the El Al airline on the local stock exchange

Foreign investors feel that the economy is on the brink of growth, and therefore, Israel's credit rating fails to reflect the correct degree of risk, said Netanyahu. The most important development is that the yield on Shahar government bonds has dropped below 8 percent, he said. "That is the steepest drop ever, indicating that something is happening," he said.

The shekel continued its recent rise against the currencies of Israel's major trading partners, with the representative rate against the dollar 0.6 percent greater than Wednesday's rate. Even after the representative rate was set, trade pushed the dollar further down to NIS 4.32. The shekel has not reached this level since December 2001, one week after Governor of the Bank of Israel David Klein announced a 2 percentage point cut in the interest rate.

Some market traders attribute the recent rise in the shekel to the interest rate differential with the United States and Europe. Given the low inflation rate (a negative 0.5 percent CPI was registered in May), Klein cut interest rates by 0.5 percentage points earlier this week. The Bank of Israel's prime lending rate now stands at 7.5 percent.

However, the effect of the cut may turn out to be less than expected, since the U.S. Federal Reserve cut the U.S. interest rate by a quarter percentage point to 1 percent, the lowest rate recorded since 1958.

For the first time since the beginning of May, the euro slipped below the five shekel level yesterday with the representative rate set at NIS 4.955.