Israel’s Stretched Strike Capability
As speculation again mounted that Israel was preparing a military operation against Iran’s nuclear facilities after comprehensive international sanctions, banks and the stock exchange were shuttered by a labor federation strike over contract workers, as the Netanyahu administration struggles to slim state employment to tackle the 3 percent of GDP budget deficit. Municipal civil servants had previously walked out on proposed higher utility taxes to raise revenue as housing costs continue to spark national debate despite evidence of modest correction as bank lending standards are reviewed. Interest rates went down 25 basis points to 2.5 percent in January but many households are unable to get mortgages while 90 percent financing has overextended other borrowers. Property developers tied to a handful of family-run conglomerates that have readily accessed cash have drawn widespread official and popular criticism, and reducing their economic dominance has become a coalition priority as it also engages in contingency planning from Arab spring revolts. Delek Real Estate became overleveraged and recently completed a debt restructuring which sparked outcry from the central bank over favorable owner terms. Foreign investors after a run-up last year have shunned local corporate as well as government bonds, which lost their former tax exemption. The sovereign returned to external markets with a $1 billion US issue which was well-received as the first placement in three years after a ratings upgrade. Venture capital-raising likewise hit a decade peak of $2 billion in 2011 with one-quarter of the total going to internet start-ups, but the industry association predicts less activity ahead with the lackluster IPO climate both on the Tel Aviv and New York stock exchanges.
In the US, listed multinational companies have long been under scrutiny for relation with Iran, and the oil and financial embargoes have been stiffened in a new round to include European and Asian partners and the central bank and SWIFT payments network. Tehran has threatened retaliation with oil supply suspension and Strait of Hormuz closure as the currency has fallen 50 percent against the dollar with pressure intensification, forcing the central bank to intervene heavily and hike benchmark rates which remain indicative for no-interest Islamic lending. Restrictions have been tightened on foreign transfers as inflation already at 20 percent further spikes. The fiscal deficit was again worsening prior to the confrontation as the Ahmadi-Nejad administration moved to restore subsidies and spending ahead of March parliamentary elections. The stock exchange too could be caught in the boycott net as privatizations slowly unfold inviting foreign participation. Geopolitics may be deterrent enough despite the Israeli Defense Minister’s assurance of “no imminent decision” on an attack as Tehran transactions indefinitely lodge in their bunkers.
