The interest rates on Israel Bonds will be lowered in an effort to be more competitive with money the Israeli government can raise in commercial markets.
The international organization announced what it called substantial decreases mainly in the bonds being sold with floating interest rates.
“We’ve reduced interest rates by having a larger spread below the prime rate than before” as a reflection of “our sensitivity to Israel’s cost of raising money,” said retired Gen. Nathan Sharony, president of Israel Bonds in New York.
The prime rate is a benchmark used by banks to set interest charges based on the banks’ borrowing costs.
Given its improved economic standing, “Israel has succeeded in raising money at a cheaper rate in the commercial market, so we had to adjust,” Sharony said. “The government shouldn’t pay a prohibitive price.”
Israel Bonds offers to Diaspora Jews securities issued by the government of Israel and provides investment capital for the development of Israel’s economy.
The reductions follow complaints by some Israeli politicians in recent years that the rates of the bonds made them burdensome to the government. The complaints angered many in the Diaspora establishment.
For Sharony, such remarks reflected a failure to understand that the bonds are an important connection to Israel for Diaspora Jews as well as “a safety net for a rainy day.”
“No one wants to lose that,” he said.
“Irrespective of what Israel’s economic or political situation is, this constituency always buys bonds, and in worse times, they buy more,” he said.
Finance Minister Avraham Shochat praised the announcement, according to a statement issued by Israel Bonds.
“Israel should not give up an important source of income, one that is not dependent on economic and political fluctuations in the Middle East and the international capital market,” he said.
Some of the changes include a drop in the floating rate bond with a fixed maturity date of Jan. 31, 2003, from the American prime rate minus 0.75 percent to the prime rate minus 1.5 percent. The interest rate will not exceed 8 percent.
The interest rate on the economic development bond will go down from 0.75 percent to 0.70 percent.
Israel last month issued for the first time more than $200 million in guaranteed fixed bonds on the financial market in the United States, Sharony said.