Tamar natural gas rig 370.
(photo credit: Albatross)
The government on Sunday approved the creation of a sovereign wealth fund to
manage profits from Israel’s natural gas fields and prevent the influx of
dollars from overvaluing the shekel.
But the fund’s creation only becomes
final after the Knesset legislates it.
Many states that discover large
natural resource reserves set up such funds to avoid what economists call “Dutch
disease.” Selling natural gas on the world market would flood Israel’s economy
with dollars, making them cheap relative to the shekel.
A strong shekel,
in turn, would make Israeli goods more expensive on the world market, hurting
Stashing a portion of the profits in a sovereign wealth fund,
which would invest the dollars abroad, ensures that the natural gas does not end
up inadvertently hurting the economy’s trade sector.
Israel needs such a
fund, now that it opened the Tamar gas field – Israel’s first – in March and
plans to open the Leviathan field in 2016.
The start to natural gas
output was a factor in pushing the shekel to a 17-month high against the dollar
last week, prompting concern from exporters and leading to central bank
intervention in the foreign exchange market to contain the shekel.
final annual report earlier in April, Bank of Israel Gov. Stanley Fischer urged
the government to create a sovereign wealth fund as quickly as
A committee representing the Prime Minister’s Office, the
Finance Ministry and the Bank of Israel had recommended that the fund invest
part of the profits abroad but reserve a portion for investment in education and
The cabinet announced plans to create a sovereign
wealth fund in February 2012 and approved it in October, but the Knesset never
got around to passing it before the government fell later in the year.
a result the new cabinet had to reapprove the fund’s creation.
the fund will come from a progressive tax of as much as 60 percent on natural
gas revenue and only after the exploration firms recoup a large part of their
Other natural gas income, such as royalties and corporate
taxes, will stay in Israel and boost government coffers.
Under the bill,
the only way the government can have access to the fund’s principal in the event
of an emergency is with the approval by at least 65 of the 120 lawmakers in
Eugene Kandel, head of the National Economic Council – which
assists the Prime Minister on economic issues – said he hoped the wealth fund
bill will be quickly passed by the Knesset.
The Bank of Israel-managed
fund should start operating in 2016 or 2017 and invest outside of Israel, he
Energy and Water Minister Silvan Shalom praised the decision of the
government to establish the fund. While the minister would have preferred that
the discussion of the fund occur in conjunction with one on the conclusions of
the Zemach Committee – which provided recommendations on gas export allocations
– the minister said he was satisfied with the decision that mere made on
Sunday.Sharon Udasin and Reuters contributed to this report.