Aaron Katsman
www.IsraelNewsletter.com

The Israeli Shekel is once again surging against all global currencies on remarks by Bank of Israel Governor Stanley Fischer,  saying that he expected the Shekel to continue to strengthen. What is strange about the comments is the fact that the BOI has been trying to prop up the US Dollar, actually intervening in the forex market, and stated their goal of weakening the Shekel.

So why the Fischer comments? I have no idea. Why would he come out in public and make statements that contradict the very policy that he himself implemented?

It’s possible that Fischer is worried about potential inflation in Israel, a phenomenon that we are seeing worldwide, and is signalling to the market that he isn’t going to cut interest rates anytime soon. He is planning to do all that he can in order to halt inflation, even at the expense of trying to devalue the currency.

Disclosure: He holds no position in any other stock mentioned as of 4/15/08.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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It’s a holiday-shortened week, so let’s jump right in.

On a macro front, it’s interesting to read that the G-30, an international group established in 1978 and composed of very senior representatives of private, public and academic circles, will be holding their 2008 plenary in Israel. Israel’s own Bank of Israel Governor, Stanley Fischer, will be hosting the group as part of Israel’s 60th anniversary celebrations.

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Google Israel (GOOG) is at it again. Now, they’re expanding into an additional 60m on the 21st floor of the Levinstein Building in Tel Aviv. Read about what IsraelNewsletter thinks is going on at Google Israel here.

Teva (TEVA) gets OK to sell generic version of Protonix. Although the Israeli generic powerhouse won the right to sell a version of Wyeth’s (WYE) Protonix, it may choose to hold off doing so until a full decision comes this Wednesday.

The Butler Group out with a new report saying that many medium- to large-sized ISVs (Independent Software Vendors) would benefit by leveraging Ness Technologies’ (NSTC) Managed Labs Offshore Delivery Model. Working with Ness allows ISVs to continue to beef up and speed up R&D while keeping costs manageable, said Butler. Read the whole report here. Check out IsraelNewsletter’s 4 Reasons to Go Long Ness Technologies as well.

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Read IsraelNewsletter’s coverage of Blue Square-Israel’s (BSI) new foray into organic and health food.

In spite (because of??) all the M&A hullabaloo regarding ECI’s (ECIL) takeover by the Swarth Group, ECI wins a nice deal with India’s Bharti Airtel. Read what IsraelNewsletter has had to say about the impending ECI deal.

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Professor Stanley Fischer, Governor of the Bank of Israel, gave an address to the Knesset Finance Committee on May 9th, 2007. Some of the highlights of his address included:

Israel’s success
2006 was one of Israel’s most successful years. This was reflected in the high rate of growth, the decline in unemployment, the impressive surplus in the current account, the amount of foreign investment in Israel, and price and financial stability. Fischer noted that all of this success is even more impressive given the fact that Israel was engaged in war.

Problems
Some of the problems that he addressed were the relatively high unemployment rate, the relatively large share of public debt in the GDP, and the high incidence of poverty. Nonetheless, he noted all three of these have improved over the past three years.

The main objective of Israel’s macroeconomic policy, he said, should be the maintenance of a high rate of growth and converting it into a long-term one.

In order for Israel to have continued success, Fischer stressed that the government’s economic strategy needs to continue, and consists of three components:

1. Continue the current fiscal strategy which focuses on the preservation of a low budget deficit, which should lead to a further lowering of the high debt/GDP ratio.
2. The monetary strategy should continue to ensure price stability.
3. Economic reforms should continue, specifically privatization, improved education, better competition and infrastructure investment.

Fischer noted that the current inflation level is very low, even lower than the target. He considered the containing of inflation to be the primary target, with the secondary targets being to contribute to economic activity and financial stability.

He addressed the often asked question, “How can Israel’s economic situation be so good despite all the political problems facing the country?” He suggested several reasons including:

• The global economy is growing at an impressive rate,
• The government has maintained fiscal discipline,
• The Bank of Israel keeps a steady hand on the pulse to carefully watch inflation,
• There is a far stronger and more robust economic framework in Israel than previously existed,
• The business sector, during the war last summer, showed its ability to carry on functioning well and meet its delivery dates.
• Finally, he noted that the OECD is currently deliberating on the enlargement of the organization, and the Bank of Israel has been actively working on a process that should hopefully lead to Israel’s membership in the organization.

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