Weak Dollar to Cost Industry $2.4 Billion This Year

Exporters have lost NIS 700 million as a result of the strengthening shekel vs the dollar in 2007

Exporters have lost NIS 700 million as a result of the strengthening shekel to the dollar in 2007, according to Shraga Brosh, president of the Manufacturers Association of Israel. He says that if the dollar's low exchange rate remains at current levels, industry will lose sales of about $2.4 billion this year.

Brosh added that the figure includes export losses of 5 percent - about $1.5 billion - and losses in local market sales as a result of the improved competitiveness of imports of around 2 percent - about $9 billion.
Brosh called on Bank of Israel Governor Stanley Fischer to reduce interest rates by 0.5 percent this month to curb the shekel and help preserve exporters' competitiveness.

Economists from the association said that the shekel nominally strengthened by 10 percent over the past year compared with the dollar, and due to the heavy weight of the dollar in Israeli export transactions (about 75 percent), the effect of the weakening grenback on growth rates is critical.

Harm to export profits is seen in the immediate term, whereas damage to competitiveness stings future export transactions and sales in traditional industry in the local market.

"Because the strength of the shekel over the past year is primarily a result of positive developments in the economy, the only thing remaining is to take aggressive action to encourage exports in general and small and mid-sized exporters in particular," added Brosh. "This could be through the removal of barriers, mainly in financing and marketing."

The Kibbutz Industries Association has also approached the Bank of Israel in demanding that immediate steps be taken to halt plummeting revenues and profitability among exporters.

A calculation presented by the manager of the Kibbutz Industries Association export department, Amos Shalev, shows that due to an 11 percent drop in the dollar since early last year, 300 kibbutz industries have recorded losses totaling NIS 2.1 billion.

Sixty percent of revenues from export-dependent kibbutz industries are based on the dollar, while costs in these industries, such as labor, are mainly in shekels. As a result, there has been an unprecedented erosion of revenue and profits in kibbutz industries, which constitute about 10 percent of all industry in Israel.

Shalev said the Kibbutz Industries Association demands that the Bank of Israel and treasury take immediate steps to halt this dangerous trend.

He said that the measures taken by the Bank of Israel over the past year to protect exports, such as the reduction of interest rates, have proven ineffectual, and that additional, even temporary measures should be taken to enable Israeli industry to restructure its activity in new market conditions.

"The ideology of a free market at any cost, and an absolute hands-off policy by the central bank and the government, appears to be bankrupt," said Shalev. "The fact is, not only are exporters suffering, target inflation rates of the government and the Bank of Israel are not achieved as a result of the exchange rate.