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Once - just over twenty years ago - finance minister Yigal Hurvitz had a problem. He needed to raise $50 million in credit overseas to import fuel. Because of the country's difficult economic situation, at beginning of the hyper-inflation era, overseas banks didn't want to increase Israel's credit line, not even by $50 million.

Hurvitz made a call to Ernst Japhet, the chairman of Bank Leumi at the time, who pulled some strings overseas to raise $50 million in credit for the bank, which it then lent to the government. In other words, foreign banks gave Bank Leumi a higher credit rating than the state.

This absurdity is no more. International credit ratings have grown in scope and influence over the past two decades and will no longer rate a company higher than the country it operates in. Therefore, as soon as the two largest banks, Hapoalim and Leumi, have their ratings downgraded, it is only a matter of time before the state of Israel has its own rating downgraded, and the cost of raising capital goes up.

This evaluation is even more true of a country like Israel where the two largest banks hold an enormous share of its economic activity, far more so than is standard in the West. Thus, too much weight should not be given to the soothing announcements from the credit rating companies. Their analysts are polite American economists who never say on the record what they actually think. The turning point with regard to the credit rating of the banks and the state, and the cost of raising capital, was in April this year. It was the immediate result of Operation Defensive Shield.