The export industry is urging the Treasury and the Bank of Israel to act quickly and drastically to help with the crisis it faces as the continued drop in the dollar causes millions of shekels in losses.
"The industry needs to know why it should stay in Israel as the current situation does not economically justify being an industrialist in Israel," said Shraga Brosh, President of the Manufacturers Association of Israel at an urgent meeting with manufacturers and representatives of the Treasury and the Bank of Israel in Tel Aviv on Tuesday evening. "Fast action needs to be taken to save the Israeli export industry and avert thousands of layoffs."
Brosh called on the central bank to cut interest rates from the current 3.75 percent to 2% by the end of the year to reach an inflation target of between 1.5% and 2% and move the shekel-dollar exchange rate to NIS 4.1. The Bank of Israel's target range for inflation is 1% to 3%.
Speaking at the conference, a number of manufacturers called for government assistance to reduce labor costs, cut export tariffs at the ports and other measures to help industry.
"I understand the plight of the industry but let there be no illusion, there are no easy solutions," said Yarom Ariav, director-general of the Finance Ministry, who formerly worked at Israel Chemicals Ltd. for 14 years. "Israel's economic long-term strategy is to be part of the global world and not government intervention or currency protection."
Meanwhile, Deputy Governor of the Bank of Israel Zvi Eckstein stressed that the central bank had no intention to intervene.
"We don't want to roll back. We have a healthy economy but it is a different economy," said Eckstein. "We don't want to surprise the markets. To be part of the global world we need to keep monetary and fiscal stability."
Eckstein said he hoped the government would act fast to ease the plight of industry but wasn't very optimistic.
"I don't think we will see the government put aside a high budget for helping the exporters," said Eckstein. "Exporters could, for example, insure against exchange rate risk, but it is very expensive."
Earlier this week the Manufacturers said the weakening dollar was continuing to take a toll on hi-tech exporters, who it said have lost NIS 500 million over the past four months and were considering changing production locations.
"The weak dollar is weighing on the attractiveness of production and of buying professional services in Israel. Expenses of our factory have widened by $3m. in dollar terms," said Haim Mer, CEO of Mer Industries Ltd, a provider of turnkey solutions for telecommunications, security, defense and other sectors. "Mexico is turning out to be more attractive for us."
Mer, which employs 500 people at its factory in Israel, has fired more than 200 workers over the last two months. In Latin America, the company employs 180 people.
"If the dollar remains at its current level, hi-tech exporters are poised to incur losses of NIS 1 billion in 2007 causing damage to the competitiveness of the hi-tech industry," said economists.
The losses are incurred as a result of the par between the expected exchange rate at the time of orders and the exchange rate at the actual time of payment.
The dollar weakened against the shekel to as low as NIS 3.96 on Tuesday, the lowest official exchange rate in over seven years. Since the start of the year, the shekel has gained by 5.3% against the dollar.
As a result of the currency move, Yosef Goren, CEO of Gamatronic Electric Industries Ltd, told the Association his company has earned NIS 7m. to NIS 8m. less since the beginning of the year for goods delineated in dollars. The Jerusalem-based power electronics company has a factory in the capital employing 190 people.
Arie Levin, general manager at AVX Israel, a subsidiary of AVX Corp. warned that the increase in the shekel cost base resulting from the fall of the dollar was threatening the expansion of the company's factory in Jerusalem, which employed 200 workers.
"We were planning to expand the factory involving investments of millions of shekels, but the parent company (US AVX Corporation and AVX Kyocera Japan) is now reconsidering the attractiveness of the factory expansion in Israel," said Levin. "Over 95% of our production in Israel is for exports mainly to dollar bloc countries. The change in the shekel-dollar exchange rate has squeezed our profits by 15%."
Similarly, the textile industry is considering alternative production locations.
"The dollar slump, which has pushed our revenues down by 15% is forcing us to switch manufacturing to alternative places abroad and lay off the majority of workers in Israel, which the government will need to subsidize," said Meir Blum, CEO of the Fibrotex textile factory in Petah Tikva, which employs 80 workers. "As a result of the fall of the dollar, the factory lost more than $500,000 in the first quarter of this year."
AVX's Levin called for the government to introduce a policy of currency intervention similar to what has been undertaken in Japan to keep Japanese exports competitive.