Israel will follow in the footsteps of China, Russia, Brazil and other countries by diversifying its foreign currency reserves. Minister of Finance Yuval Steinitz today addressed the IMF/World Bank Annual Meeting in Istanbul and said that Israel will use some of its foreign currency reserves to loan money to the IMF as part of its support for emerging markets. This is part of the G20 initiative to increase the resources available to the IMF.
Steinitz said, "Israel is interested in contributing to this important task, and so we have decided to take a part in the new important financing programs that were recently announced: NAB (New Arrangement to Borrow) and the Voluntary SDR (Special Drawing Rights) Allocation. In line with its request, the IMF can receive a loan of up to $500 million in SDRs, which will come from the Bank of Israel's foreign currency reserves. In addition, Israel will be committed to buy its SDR allocation, an investment which will also be executed from the foreign currency reserves."
SDRs (special drawing rights) are an international reserve assets launched by the IMF in 1969. A $500 million SDR is worth $700 million, and in addition sources inform "Globes" that as part of the NAB, the Bank of Israel will make a further $1 billion available to the IMF from its foreign currency reserves, which amounted to $56.4 billion at the end of August. The SDR is comprised of a basket of four currencies - the euro, yen, pound sterling and US dollar, and is considered a safe investment.
Steinitz said, "Today we are cautiously optimistic. I believe that the real nature of the economic crisis we are experiencing is far from being solves. At this stage it is still too early to draw definite conclusions, although we can point at causal connections in a series of exceptional events that led us into the crisis with the bursting of the sub-prime bubble in the US 18 months ago, followed by the collapse of Lehman Brothers and the current buds of recovery. We must ignore the fact that this chain of events seems inevitable only in retrospect."
Steinitz stressed the strong position in which the Israeli economy entered the crisis including high growth, a reduction in the public's debt, relatively low budgetary deficits.
He added, "Also relevant was the relative soundness of the real estate market and the financial system. Real estate assets were properly priced and this prevented a real estate bubble effect for which Israel is famous being created. The financial system was impressively resilient, and was strong enough to prevent banks, insurance companies or other financial institutions from collapsing.
Published by Globes [online], Israel business news - www.globes-online.com - on October 6, 2009
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