Gov't to decide on financial support for manufacturers

The government will convene early next week to discuss awarding NIS 460 million to manufacturers to help them recover from losses suffered as a result of the weak dollar.

By MATTHEW KRIEGER
June 28, 2007 07:01
3 minute read.

The government will convene early next week to discuss awarding NIS 460 million to manufacturers to help them recover from losses suffered as a result of the weak dollar. The funds were requested by a special committee appointed by Industry, Trade and Labor Minister Eli Yishai to fund the proposed reforms. "This money is crucial for Israeli manufacturers as it will help us increase and support the country's export numbers," Manufacturers' Association spokesman Danny Laish said on Wednesday. One month ago, Yishai formed a special committee charged with composing a list of steps needed to be taken to assist manufacturers in their struggle to remain competitive in the world market despite suffering from losses brought on by the drop of the US currency. Also included on the committee were representatives from the Industry, Trade and Labor Ministry, local manufacturers, the Export Institute, the Bank of Israel and the Israel Manufacturers' Association. According to Yishai, the ministry was concerned about the long-term repercussions and the damage likely to result from the weakened dollar - estimates of which, noted the Manufacturers' Association last week, are in the range of $700 million since the beginning of the year. "The drop has especially hurt exporters' profitability and has damaged their competitive ability," said the association. The assistance measures recommended by the committee include the provision of individual advisory services to small and medium-sized companies on exchange rate hedging measures, assistance in marketing of products through participation in international conferences, assistance in organizing meetings for cooperation opportunities and new credit lines for long-term financing of exports based on OECD standards. "The money for the reforms that we have requested from the government is meant to enable the small and medium-sized exporters to survive," David Artzi, chairman of the Israel Export Institute and head of the committee, told The Jerusalem Post. "They are the future of exporting in this country and if they wouldn't have been performing well, I wouldn't have requested this money from the government," added Artzi, who pointed out that over the last three years more than 1,000 small and medium exporters have started operations. "The market has reacted wonderfully to them, both in terms of the quality of their products and their innovation," he claimed. Additionally, Yishai said that he intends to establish an oversight committee comprised of officials from his ministry and the Finance Ministry to ensure that the recommendations are carried out. Even as Yishai and the country's exporters present a "panic-mode" attitude, some financial analysts are not so concerned about the long-term affects that the weak dollar will have. "If the shekel would have remained at NIS 3.9 to the dollar, the impact on the manufacturers and exporters would have been much greater," said Michael Sarel, a research analyst at the Harel Insurance and Financing Group. Sarel explained that he had researched the effect of exchange rates on exports, estimating that a 1.2% change in the nominal exchange rate would cause exports to drop 0.3%. "While we can only estimate what the long-term damage will be, and it won't set in for another six months or so, we feel that it is largely going to be reversed by the current strengthening of the dollar, and moreover, the negative impact now is much lower than the gains that have happened over the last five years," he added. "If the exchange rate would have remained at NIS 3.93 to the dollar for an extended period, then we would begin to see real damage caused," he said, estimating that such this exchange rate would bring about a 2% drop in exports. Sarel noted that greater damage to the economy has come after elongated periods of terror attacks. "Attacks causing civilian casualties in major cities turn other countries into less willing trade partners and make tourists less willing to visit," he said. "On the other hand, we saw no downturn following the Second Lebanon War and expect no effect from the current situation in the Gaza Strip."


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