America's Bond Default Problem Worse Than Israel's, Says Ministry

Meirav Arlosoroff
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Meirav Arlosoroff

Despite recent stories about high-profile Israeli companies defaulting and trying to reschedule their debts, the problem is less prevalent in Israel than in many other developed countries, including the United States. So says the Finance Ministry.

In fact, Israel’s bond rescheduling rate is among the lowest in the world, says the office of the commissioner of capital markets and insurance at the ministry.

In the United States, from 2008 to 2012, on average 3.58% of bonds were subject to debt rescheduling, a survey conducted by the commissioner's office found.

Among the countries belonging to the Organization for Economic Cooperation and Development the figure was 1.89%. In Israel, the rate was 1.26%.

The analysis was based on data from the Standard and Poor’s agency and the Basel-based Bank for International Settlements.

The statistics show that the debt rescheduling rate in Israel was substantially lower here than in the United States each year between 2008 and 2012, although compared to OECD countries as a whole, Israel’s situation was worse in 2009 and 2011, but better than the OECD average in 2008, 2010 and 2012.

Staff at the supervisor of capital markets’ office say this is evidence of the fact that capital markets in Israel have been functioning well. Plus, institutional investors such as pension fund managers here have exercised appropriate professional judgment, as reflected by the rate at which bond issuers have failed to repay their original obligations.

The data also explain the opposition on the part of the capital market supervisor to stiffen regulatory oversight of institutional investors in general, and resistance to limiting the extent of their investment in a single business entity or group.

The data may be viewed with some reservations, however, because during the period analyzed, the United States and many other OECD countries were in the midst of dire economic crisis that weighed hard on companies.

Israel avoided the global economic crisis, but that means Israel’s relatively good showing in the data on bond debt rescheduling might have more to do with its overall economic situation than how its capital markets have functioned. 

Oded Sarig, the commissioner of capital markets. Credit: Ofer Vaknin

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