Israel’s Unleavened Coalition Recipes
Israeli shares broke their funk as prime minister Netanyahu assembled a last-minute coalition before the electoral deadline, arrival of US President Obama, and Passover holiday period which will give independent and far-right parties the economy and finance ministries. Orthodox religious groups were kept from joining as the new entrants plan to curb educational and military privileges to deal with the increased budget deficit at 3 percent of output and middle-class discontent. The team must handle the defense and diplomatic challenges from Iran and Syria, and reconcile a commitment reiterated during the presidential visit to negotiate “without preconditions” with the Palestinians as West Bank settlements expand. Tax revenue withheld after previous fighting was transferred to the Palestinian Authority which again seeks urgent aid after reaching the limits of commercial bank borrowing to cover expenses. GDP growth has returned to 3 percent with the PMI around 50 as export orders rise despite the stronger shekel. Inflation is half that amount but housing prices continue to defy control efforts despite the central bank’s mortgage guidelines. Two-term governor Fischer will leave the post at end-June with no consensus candidate to succeed him as a champion of fiscal and monetary restraint. Foreign investors praised his solid background but criticized intervention against “hot money” inflows particularly imposition of a short-term bond tax. He also advocated caution in breaking up family-run conglomerates that dominate exchange listings, as leading bank IDB scrambles to restructure debt with its entrepreneur owner under investigation for securities fraud after selling his Clal Insurance unit to Buffet’s Berkshire Hathaway. President Obama went from Tel Aviv to Amman, where stocks have been flat, to meet with King Abdullah after he successfully staged elections in the face of a Muslim Brotherhood boycott, and signed an IMF standby after losing energy supply from Egypt and coping with an influx of 400,000 refugees from Syria. The US delegation offered an additional $200 million in bilateral assistance and to guarantee a planned $1 billion sovereign bond as previously applied with Tunisia. The Gulf Cooperation Council which asked Jordan to join may also buttress medium term pledges of $5 billion. Fuel subsidy reform will move forward with better targeted cash grants in April, and a nuclear plant is under consideration for a future source with French and Russian operators.
Lebanon’s index too has barely budged on the MSCI frontier as annual tourism is off 20 percent and the government again collapsed over fissures from the Syrian conflict and failure to stem state company losses keeping the public debt/GDP ratio among the highest in the emerging world. Luxury hotels are only half-occupied, and business balks at steep rents and power shortages. Consumption and investment are down even as traders have relocated to Beirut from Aleppo and Damascus in the ceaseless cycle of sectarian strife.
