(photo credit: Ariel Jerozolimski)
The government has decided to extend its assistance program for exporters for another year to help them cope with the weakness of the dollar against the shekel, which is badly hurting exports.
"It is our duty to act in order to help exporters to survive this
period and assist and strengthen their ability to compete with global companies," Industry, Trade and Labor Minister Binyamin Ben-Eliezer said at the weekend. "We need to remember that Israeli exporters are struggling with the global economic crisis and the temporary appreciation of the shekel against the shekel. This situation is dangerous for the Israeli economy and is poised to trigger a wave of layoffs."
Ben-Eliezer's ministry and the Finance Ministry decided on the extension of the exporters' aid program for another year - it had been set to expire at the end of the 2009 - and on improved conditions. Under the framework of the aid program, companies with exports of up to $10 million in the previous year of application are eligible to receive advice on hedging against exchange rate fluctuations, changes in prices of commodities and raw materials, interest rates and other risks. Over the next year, the government will subsidize 75 percent of the cost of the consulting services, compared with 50% today.
Following a meeting early last week with Elisha Yanai, President & CEO of Motorola Israel, which discussed how the falling shekel-dollar exchange rate was hurting exporters, Ben-Eliezer urged Finance Minister Yuval Steinitz to convene an urgent meeting on the issue.
"The ministry under my leadership has implemented a number of effective tools to help exporters deal with the weakness of the greenback. Unfortunately, though, it is not in the ministry's power to use monetary tools in order to have an impact on the exchange rate itself," said Ben-Eliezer. "Therefore I am calling for an urgent meeting in order to examine joints effort to help Israeli exporters survive, and thereby provide jobs for many families.
Over the course of last week, the shekel-dollar exchange rate slid to below NIS 3.70, its lowest point since December, before rising 1% to a representative rate of 3.77 on Thursday after the Bank of Israel announced that it was leaving October interest rates unchanged at 0.75%.
Over recent weeks, the Bank of Israel has shown stronger involvement in the foreign exchange market as the shekel-dollar exchange rate continued to drop.
"Our view is that the central bank's ad hoc interventions in recent weeks are not designed to reverse the direction of the shekel, but merely to impose a speed-limit," said David Lubin, economist at Citigroup Global Markets. "We think that the bank will consider further shekel appreciation as a possible source of additional disinflation."
In the October interest rate announcement, the central bank suggested that the appreciation of the shekel in terms of the nominal effective exchange rate in the last few months had contributed to the moderation of inflation.
"Since we think the decline in housing inflation is indeed a function of a stronger shekel - as the central bank seems to acknowledge - it follows that further shekel strength can act as a substitute for interest rate hikes," said Lubin. "For that reason, the market's fear of multiple hikes may be misplaced, particularly since the central bank still aims, as it says, to strike a balance between price stability and providing support for the real economy."