'Dollar slump is national disaster'

Export industry expects loss of $3.5 billion in orders and 30,000 jobs.

dollar 88 (photo credit: )
dollar 88
(photo credit: )
The Manufacturers Association of Israel has urged the Finance Ministry 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 say, the industry is poised to lose $3.5 billion worth of orders and 30,000 jobs this year. "The dollar crashes and Finance Minister Ronnie Bar-On remains silent," Manufacturers Association president Shraga Brosh said Wednesday at a press conference in Tel Aviv ahead of the organization's annual meeting on Thursday. "If the dollar remains at its current weak level, the exporting industry is expected this year to lose $3 billion in export orders and $500 million in domestic orders, which in turn is poised to lead to a loss of 30,000 jobs across the industry." In 2007, exporters recorded total losses of about $2.1b. as a result of the dollar plunge against the shekel, according to the association. In the first two weeks of this year, the slide in the shekel-dollar exchange rate has led to a 3.4 percent appreciation of the shekel against the dollar, reaching a nine-and-a-half-year high currently trading at about NIS 3.70. "Over the past two years we have been struggling with a continued weakening of the dollar against the shekel, which has lost 19.6% since 2006," said Brosh. "I spoke to Bar-On [Wednesday] morning to call for an emergency meeting on the dollar, upon which he responded, 'I don't intend to do anything.' If the finance minister refuses to act when local factories are starting to close production lines and manufacture abroad, the government needs to take responsibility." According to Henry Zimmerman, CEO of Trellidor Israel, a leading security folding-bar company, the fall of the shekel-dollar exchange rate has had a catastrophic effect on his company's exports to the US and to other countries linked to the US currency. "If the downward slide continues much further, we will have to close local production lines for exports, suffer a loss of revenues and in turn we will have to cut down on our staff," he said at the press conference. "There is a limit to Zionism. We are a business and exports ought to generate profits expanding the company's activities." Haggai Scheffer, CEO of Chromagen Solar Energy Systems, said that since 50% of his company's exports were designated to dollar-trading countries, Chromagen was expecting to record a $15m. loss in profits in 2008. Yehuda Zisapel, the new chairman of the Association of Electronics and Software Industries, said the sharp depreciation of the dollar was weighing heavily on the rate of growth in the hi-tech industry, the economy's main engine of growth. "The rate of growth of the local hi-tech industry has dropped from 20% to 10% in 2007," he said. "Hi-tech salaries, which are fixed in dollars, rose by 10% last year, while at the same time the dollar plunged by almost 20% over the past two years, raising the costs of labor." Under the current situation, Brosh is urging Bar-On and the government to enact measures akin to the steps taken following the Second Lebanon War, when the government provided emergency assistance of NIS 3b., which saved businesses and factories in the North. "In a similar manner," he said, "Bar-On needs to enforce an emergency assistance budget to combat the crisis and avert the collapse of factories and local exporters." Brosh has also urged Bank of Israel Governor Stanley Fischer to cut interest rates by 0.25 at the end of the month in an effort to ease appreciation of the shekel. 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. "The bad December inflation figures forces us to tweak our inflation forecast further upwards," UBS analyst Reinhard Cluse said in a research note. "We now see inflation rising to as much as 3.7% annually in February, 0.2 percentage points higher than we anticipated so far, given the strong performance of the shekel in recent weeks, which implies very low inflation rates for January and probably also February, and our expectation of a 50 basis-point interest rate cut by the [US] Fed in late January." The December figures pushed the inflation rate for 2007 to 3.4%, breaching the government's price stability target range of 1%-3%.