War Aids Israeli Bond Sales
- WAR AIDS ISRAELI BOND SALES
Péralte C. Paul, Atlanta Journal-Constitution, 8/2/06
Conventional wisdom holds that globe-trotting buyers of foreign bonds
flock toward stability and flee uncertainty.
But as the Israeli-Hezbollah war now in its 22nd day continues and
tensions escalate in the Middle East, some investors, particularly
those with Jewish roots as well as others sympathetic to Israel, are
buying more Israel-issued bonds in a show of solidarity.
"People have the conviction that Israel shares the same values that
Americans do," said Raphael Rothstein, a spokesman for the Development
Corp. for Israel/State of Israel Bonds in New York.
But some critics in the Arab-American community say bond investors,
which include state, county and municipal governments, run the risk of
looking like they're taking sides in the decades-long Arab-Israeli
Last week, Arab-Americans in Cuyahoga County, Ohio, which includes
Cleveland, protested the county treasurer's decision to purchase $5
million in Israeli bonds.
The bonds pay 5.3 percent to 5.85 percent for maturities that range
from two to 10 years. That's comparable to Monday's 5.57 percent
average yield of U.S. high-quality corporate bonds with one-year to
The 55-year-old Israeli bond organization is authorized to sell
interest-bearing securities in the United States to fund agriculture,
communications and transportation projects, among other endeavors.
"These are very specific instruments; they're retail bonds targeted to
the Jewish diaspora," said Konrad J. Reuss, managing director of
Standard & Poor's sovereign ratings group in London.
"What you have there is a loyal base," he said, noting that Israel
gets strong investment support from Jews in France and Britain in
addition to those in the United States. "The tougher the times, the
more loyal the investor base."
In a report issued last week, Reuss reaffirmed S&P's "A-" long-term
foreign currency rating and "A+" long-term local currency sovereign
credit rating on Israel.
"The ratings reflect the improved resilience of Israel's public
finances and economy to geopolitical shocks, after a three-year-period
of fiscal consolidation and strong economic growth," Reuss wrote in
Israel's gross domestic product the value of all goods and services
produced grew between 5 percent and 6 percent in this year's first
quarter, Reuss said. Tourism will suffer, and he estimates the current
conflict could shave 1 percent to 2 percent off the country's economy,
but even an annual growth rate of 4 percent is considered respectable.
Despite the unrest in the region, international investments in Israel
continue, said Tom Glaser, president of the American-Israel Chamber of
Commerce in Atlanta.
On Monday, SanDisk Corp., the world's largest supplier of flash memory
data storage card products, said it would acquire Israel's M-Systems
Ltd. for about $1.5 billion. And last week, computer maker
Hewlett-Packard said it would buy Israeli business software maker
Mercury Interactive a company dogged by accounting problems for
"Business activity remains strong," Glaser said. "The biggest impact
always is tourism, but regarding international business, investment
continues to be strong."
Still, there is cause for concern if the Israel-Hezbollah conflict
erupts into a larger war that draws other Arab nations into the fighting.
"Assuming no escalation of the hostilities into a regional,
conventional war or protracted engagement in Lebanon and Gaza,
Israel's finances and economy are sufficiently robust to absorb the
negative impact stemming from the ongoing deterioration of the
security situation," Reuss wrote.
Also working in Israel's favor is a loan guarantee program it has with
the United States, he said. Under the program, Israel can obtain loans
of up to $9 billion from bankers often at lower rates and longer
repayment periods because of the guarantees by the U.S. Treasury.
The government of Israel, which sets the amount of money to be raised
through the bonds, has charged the Development Corp. for Israel with
raising $1 billion in 2006, the same as last year, Rothstein said.
The group, which has sold more than $25 billion in bonds since its
inception in 1951, has raised some $600 million so far this year
putting it ahead of last year's pace, he said.
Ultimately, the bonds have to make good business sense, said Toby
Holzer, the Development Corp. for Israel's executive director for the
Atlanta region, which includes Georgia, Alabama, Louisiana and the
Interest rate important
Though people have accelerated their purchases, they're looking for a
return, Holzer said, noting that Israel has never defaulted on its
Bond investors range from individuals and pension funds to banks and
state governments, including Georgia. Metro Atlanta has the nation's
11th-largest Jewish population.
The critics say investments from U.S. state and local governments in
these bonds send the wrong message to Arab-Americans, Muslims and the
Middle East in general.
"This issue is cropping up all over the country," said Ibrahim Hooper,
a spokesman for the Council on American-Islamic Relations, a
Washington-based Muslim civil rights and advocacy group.
"Any time a particular government is engaged in violent attacks on its
neighbors, I think it's inappropriate and it creates the impression
that government officials are taking sides in a political conflict."
WORLD VIEW NEWS SERVICE
To subscribe to this group, send an email to:
NEWS ARCHIVE IS OPEN TO PUBLIC VIEW