Israel’s Unsettled Future Fits
Israeli bonds and stocks held their ground on the surprise second place showing by the new Our Future party founded by a media personality on a populist economic platform, as Prime Minister Netanyahu saw his majority shaved despite a similar promise to cut housing prices. His run-up to a third term was dogged by political missteps as he entered a coalition with a minister later indicted for corruption and angered US transplants by siding with Republican candidate and former consulting firm colleague Romney in the November presidential contest. He endorsed West Bank settlement building in the sensitive E-1 area as two-state talks with the Palestinians remain suspended following a brief armed skirmish and attempts to obtain separate UN diplomatic recognition. Iran policy, often influencing markets in 2012, did not feature heavily in the campaign that focused on pocketbook issues including unemployment and public spending on religious causes. Government debt is high at 70 percent of GDP as S&P affirmed its “A” rating assuming future fiscal prudence after the 3 percent deficit goal was missed last year. Inflation is within the target range as the central bank imposed loan-to-value mortgage curbs before the early election was called. The currency has been stable against the dollar but foreign investors have shunned local Makam bonds since withholding tax was applied. The $100 billion stock market has been buffeted by the mandatory breakup over time of family-run conglomerates otherwise experiencing a cash squeeze. The Dankner group controls IDB bank, insurer Clal, and defense and telecoms companies and the listing is down 75 percent and may no longer be a “going concern’’ according to a filing with the regulator who is also investigating fraud charges. Bondholders are in restructuring negotiations, as a $200 million pilot debt securitization is tried in the West Bank/Gaza coinciding with an urgent donor appeal. The Palestine Stock Exchange worth $3 billion has drawn Gulf and frontier buyer interest as well with low single-digit valuations. The Jordanian dinar circulating there has taken a beating as the Muslim Brotherhood boycotts a new round of parliamentary polls, after the King rescinded subsidy cuts needed to honor the IMF program. The military budget is still secret and exempt from cuts to maintain security force support, as the ruling family’s coffers have also come under criticism for overseas travel.
The Islamic movement was not invited into the power structure as in Morocco, which floated a $1.5 billion Eurobond and arranged a $6 billion Fund precautionary line several months ago. Despite the Eurozone crash FDI and tourism have been firm as drought slashed overall GDP growth to 3 percent. The CDS spread is 100 basis points inside Tunisia’s, despite the big 9 percent of output current account hole which joins with the energy and food subsidy bill as lingering royal economic pains.
