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Only a day has passed since Benjamin Netanyahu moved to the Finance Ministry but we can already say he has taken the office by storm. The former prime minister has swept a wave of optimism into the treasury, the country and the financial markets, whether the reason is the departure of Finance Minister Silvan Shalom or an assessment of Netanyahu's economic abilities.

You can't argue with numbers - since news of Netanyahu's appointment broke, the Tel Aviv Stock Exchange has gained strength and the bond and currency markets have responded favorably. The "Bibi effect", the "bye-bye Silvan effect" and "the magician" - were the buzzwords echoing around the markets to explain the unexpected euphoria.

Two weeks ago we wrote here that the local currency market was suffering from a case of manic depression amid evidence that just one short sentence from central bank governor David Klein was enough to propel the dollar to NIS 4.94. Now with the shekel gaining strength - even if the dollar regained some ground yesterday - the immediate question is whether the market has swung too far in the optimistic direction.

The question acquires flesh and bones if we look at Netanyahu's economic record in his years as prime minister - and it is one of resounding failure. Netanyahu entered the prime minister's office in 1996 and left in 1999 with the following accomplishments - per capita GDP (gross domestic product) fell from a positive 2.5 percent to a negative 0.2 percent, and unemployment shot up from 6.6 percent to 8.9 percent. Despite numerous declarations and a little movement in the banking sector, Netanyahu did not achieve privatization, and has no outstanding economic reforms to list on his resume, despite the favorable winds of a then rapidly growing global market.

Nonetheless, the markets smiled on him then. When he took office, the Maof-25 blue chip index was wallowing at 224 points, and the day he vacated the seat it was at 417 points. The currency market remembers Netanyahu for the massive shekel devaluation of October 1998 that was attributed to the Russian financial crisis and supposedly unrelated to local events. But it remembers him too for the shekel's impressive recovery in the months that followed.

Netanyahu is familiar with the currency market. The most prominent reform of his time in office was the huge April 1998 liberalization that made the shekel fully-negotiable for the first time, and the entry of foreign banks into the market. He also remembers well the hot summer days of 1999, when the Bank of Israel had to buy billions of shekels worth of dollars to defend the lower limit of the fluctuation band. This may be why he has already declared his intention of scrapping the band. This could conceivably increase shekel volatility, but the market is convinced the fluctuation band is so wide that eliminating it altogether would have no impact on the market

In summarizing the Bibi-in-the-treasury euphoria, it is unwise to attribute too much importance to the spikes in the TASE and the local currency. Regarding currency, Netanyahu also benefited last week from typical end-of-month dollar selling. This week, the Bibi effect will face its first test as NIS 3.6 billion in dollar-linked government Gilboa bonds are redeemed, creating a shortage of currency-linked investment vehicles.

The representative rate for the redemption is Friday and it is possible that major banks will, as they have in the past, try to squeeze it down. Meanwhile, institutional investors will try this week to find alternative dollar instruments, and, despite currency-linked issues from Bank Hapoalim, Bank Leumi and brokerage Excellence, they may still find themselves in foreign bonds.

The "Bibi effect" can't be sustained for long and from now on the market will examine the new finance minister for his deeds and emerging economic data, not for his predecessor's reputation.

And the foreign banks? For several weeks since the elections they have been sitting pretty on the fence, waiting to see what happens in Iraq and what Netanyahu and the new government actually do.