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Israel Reforms Economy on Eve of Independence Day

April 29, 1998
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Israel has taken another big step toward a free- market economy.

Under the sweeping reforms announced Tuesday, foreign currency restrictions on Israeli individuals and businesses would soon be scrapped.

The reforms will enable Israelis to freely invest abroad in such areas as land and real estate for the first time ever.

Israeli citizens will also be permitted to open bank accounts abroad, hold foreign currency at home and take an unlimited amount of foreign currency out of the country. Previously, Israelis were only allowed to take up to $7,000 out of the Jewish state.

Certain restrictions on investments of Israeli pension and savings funds abroad still remain but are expected to be lifted shortly.

Some financial analysts were disappointed that the government did not lift restrictions on foreign investment in shekel/foreign currency derivative transactions that extend beyond one month. These transactions are used for protection from currency fluctuations.

The government said it is waiting to see the effects of the current reforms before making these changes.

“Israeli individuals are freed today from all foreign currency restrictions,” said Finance Minister Ya’acov Ne’eman, speaking at a joint news conference with Prime Minister Benjamin Netanyahu and Bank of Israel Governor Jacob Frenkel.

Liberating Israelis from strict foreign exchange controls was timed to coincide with Israel’s 50th Independence Day celebrations.

The reforms — some of which will go into effect within days — are part of a move to make the shekel a fully convertible currency on world markets and integrate Israel into the global financial community.

Netanyahu said the reforms would contribute to the Israeli economy’s shift toward becoming “a modern free market that is free of bureaucracy.”

He said the reforms would attract foreign banks to Israel, a move that would boost efficiency in the economy by lowering costs in the financial services sector.

Netanyahu also expects the reforms to bring in more foreign investment.

“Investors are attracted to open markets,” he said. “They stay away from centralized economies” that are controlled by the government.

As Israel announced the reforms, the first ever shekel-denominated Eurobonds were issued abroad.

Merrill Lynch launched a bond offering valued at $47 million and the International Finance Corp. issued an offering through Deutsche Bank of Germany worth $54 million.

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