'Dollar plunge could threaten small companies' survival'

Responding to the manufacturers' demands, Prime Minister Olmert said the gov't would not intervene on the exchange rate.

By SHARON WROBEL
January 21, 2008 09:06
2 minute read.

As the government rejected last week's intervention calls by local exporters to ease the sharp plunge of the shekel-dollar exchange rate, Industry, Trade and Labor Minister Eli Yishai on Sunday raised concern over the possible loss of thousands of workers and the collapse of hundreds of small export companies. "If the shekel-dollar exchange rate remains at its current level or the shekel continues to strengthen, we are expecting a wave of job cuts over the next few months which could leave thousands of families unemployed falling into the poverty trap," said Yishai. "The shekel has appreciated by about 20 percent against the dollar over the past two years, badly hitting local exporters with business activity linked to the dollar, which make up about 70% of all exporters. In particular, hundreds of small local companies with a high exposure to dollar-linked exports could be driven to the verge of collapse," he warned. Yishai called the Governor of the Bank of Israel, Stanley Fischer, to take into account steps and measures which incorporate growth and employment considerations side by side to inflation concerns. On Wednesday last week, Manufacturers Association president Shraga Brosh urged the government to take emergency action to stem the sharp slide of the shekel-dollar exchange rate and avert a "national disaster" in the local export industry. If not, the manufacturers said, the industry was poised to lose $3.5 billion worth of orders and 30,000 jobs this year. Brosh also called upon Fischer to cut interest rates by 0.25% at the end of the month in an effort to ease the appreciation of the shekel which strengthened by about 3.4% since the beginning of the year trading at highs of NIS 3.70. But in light of higher inflation pressures, following Tuesday's release of the December Consumer Prices Index, which rose by 0.6%, analysts are predicting a 25 basis-point interest rate hike by the central bank at the end of January. Responding to the manufacturers' demands, Prime Minister Ehud Olmert said the government would not intervene on the exchange rate but would continue to monitor the situation and assist manufacturers with alternative solutions, including the recent approval of the recommendations formulated by the Artzi Committee. Yishai added that following the government's approval of the Artzi emergency program, which aims to assist industrial companies who have suffered damage caused by the weakening of the US dollar against the shekel, the ministry would speed up swift implementation. The assistance program, which is budgeted at NIS 460 million, includes a NIS 200m. emergency fund to assist small- and medium-sized companies, advisory services on how to insure against currency risk, a non-governmental fund for currency hedging and doubling credit lines for exports to high-risk markets, assistance in the international marketing of products, aid for participation in exhibitions, cooperation meetings, and adding personnel to commercial attaches. Meanwhile, the Kibbutz Industries Association reported Sunday that as a result of the continued weakening of the dollar against the shekel, exporters of agriculture produce had lost NIS 700m. in profits. Further continuation of the downward trend this year is expected to increase potential losses for the agriculture industry to at least NIS 1b., not including the impact of the rise in the prices of raw materials. In 2007, kibbutz industry exports rose by 21% to over $3b.


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