Finance Ministry Pays Off NIS 7.5b Debt to Central Bank

It took 25 years of bitter conflict, but the Finance Ministry has finally repaid a NIS 7.5 billion loan to the Bank of Israel.

The bank gave the government the loan in the 1980s as part of the plan to stabilize the economy. The Finance Ministry had insisted that it had no obligation to return the money because the loan was a procedural matter.

But this week, the Finance Ministry made its final repayment, of NIS 400 million. Yesterday, after the final payment was received, Bank of Israel Governor Stanley Fischer and Finance Minister Yuval Steinitz signed a document stating that the bank has no more financial demands on the ministry.

Fischer was involved in the stabilization plan 25 years ago, too, as a representative of the U.S. government. The plan forbade the Finance Ministry from receiving new loans from the Bank of Israel.

Over the years, the ministry argued that it did not need to return the money. Previous bank governor David Klein was ready to accept that argument, but Fischer rejected it.

At the peak of the financial crisis last year, he even froze NIS 800 million of Finance Ministry money that was deposited with the bank.

Not coincidentally, this comes as the new Bank of Israel Law is nearing completion. As the bill was being drafted, Fischer demanded that this issue be settled as well.

The sides concluded that the Finance Ministry still owed the bank NIS 800 million, but because of the high interest rates the ministry had paid the bank over the years, they agreed to reduce the outstanding debt to NIS 400 million.