IMF Cautions Over Bachar Reform Implementation

Under the shadow of a banking sector-wide strike, the International Monetary Fund cautioned in its annual report published yesterday that the Bachar reforms could deter new players from entering the capital market.

The IMF report focused on the issue of the forced divestiture of the banks' mutual and provident funds. While it acknowledged that "the concentration of banks was high" in Israel, "forced divestment may discourage potential new parties from entering the market."

Another reason cited by the IMF is the issue of uncertainty. "A decision by the authorities to intervene in the capital markets to impose restrictions that are being lifted elsewhere in the world may create uncertainty about the authorities' future intentions," the report said. The IMF mission reporting on Israeli capital markets said that implementing the Bachar recommendations would cut off bank revenues from fees and make them increasingly more dependent on interest.

The IMF also warned that the drop in fee revenue would likely propel the banks into activities harder to regulate. The report noted that Israeli authorities told the IMF that while the reforms bear risks, they are manageable and that the odds to obtain the reforms' goals without an abrupt and one-time intervention are slim.

While the IMF is satisfied with coming out with just a report, bank workers are threatening to strike in protest against the reforms, which the Knesset is set to legislate May 16. The workers' committees claim that the reforms would cause structural changes leading to massive layoffs of 10 percent of the 40,000 banking-sector jobs. National Labor Court Deputy President Elisheva Barak will hold a hearing today to try and arbitrate the dispute, and head off the strike planned for tomorrow.

"We don't have a choice other than to go on strike before Passover, because no one has held talks with us that would lead to an agreement guaranteeing employee rights," Israel Discount Bank union chair Riki Bachar said yesterday.

The Finance Ministry accuses bank management of deliberately trying to torpedo the Bachar reforms by utilizing their employees in the struggle. The treasury said yesterday that the banks' management is not holding the type of talks refered to by Riki Bachar as part of its struggle against the reforms. Management refuses to take responsibility as employers to discuss the repercussions of the reforms with their staff even though consumers would significantly benefit from the reforms due to reduced bank concentration and conflicts of interest within the sector, the treasury said.

The treasury insists that reforms will not lead to layoffs, saying that the reform deals with mutual and provident fund ownership, and not the question as to who will market them to the public, something in which the banks would be involved.

The Knesset legislative committee approved the Bachar legislation yesterday.