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Finance Minister Abraham Hirchson announced yesterday the establishment of a government fund that will extend prefered loans to small businesses in Haifa and the north.

"The goal of the fund is to speedily restore the north to normal activity, as it was before the war," Hirchson said.

The fund, established in conjunction with the country's seven major banks, is targeting some 70,000 small business owners with annual turnover of NIS 2.4 million or less. Each owner will be eligible to receive a two-year loan of up to NIS 135,000, with a six-month grace period during which the owner does not need to repay the loan. Owners will repay their loans in 18 equal payments, at a rate of 1.5 percent above the prime, and virtually without fees.

Hirchson said the loans would total about NIS 750 million. The state will provide 70 percent backing for each loan. Owners will be eligible to take out the loans as additional credit over their existing frameworks until September 15.

"The war harmed small businesses more than major factories," Hirchson said. The uncertainty caused by the war makes it hard for smaller businesses to be assisted by the banks in order to obtain financing, he said. "Therefore, we concluded that pointed, yet significant governmental support is necessary to relieve small businesses' problems with cash flow, on which their operations depend," he said. "Small businesses are the heart of the north's economic activity."

The finance minister added that establishing the loan fund is an "interim solution," and if the businesses' distress continues, "we will examine further steps to assist them."

Hirchson plans to work out today with Tourism Minister Isaac Herzog an aggressive marketing campaign for attracting tourists, mainly Israelis, to northern venues during the last couple of weeks of summer vacation and during the High Holiday season that begins in the last week of September. "I call on residents of the center and south to flood Haifa and the Galilee, and to fill up hotels in the region so that businesses there will be able to recover," Hirchson said.

The finance minister announced that treasury representatives, Federation of Israeli Economic Organizations Chair Shraga Brosh, and Histadrut Labor Federation Chair Ofer Eini have begun talks aimed at putting together a compensation package for factory owners and workers for the first two weeks of August beyond the arrangement made for July.

Hirchson rejected criticism of the decision to cut NIS 3 billion from the 2006 budget. "We transfered NIS 300 million to the Defense Ministry a week ago to purchase fuel from emergency reserves," he said. All told, the treasury will transfer NIS 2 billion to the ministry. Noting that money does not come out of nowhere, he stressed: "It's with a heavy heart that we cut the budgets of various ministries, but this is the solution. I sat with every minister explaining the need for this step, and I found everyone to be understanding."

Industry and Trade Minister Eli Yishai, who spoke alongside Hirchson, said a "blue and white from the north" campaign is currently under way in which the public sector would be encouraged to purchase products from northern factories. He also said he would soon transfer his office to one of the Galilee communities, which would operate there twice a week.

Employment offices in the north will open today after being closed for over one month. Unemployed residents who were supposed to visit the offices during the war but did not will not lose their eligibility for benefits.