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Government of Israel
Global Dollar Bond Offering
February 2004
Discussion Outline
1
1
Introduction
2
Israel: An Advanced Industrialized Economy
3
Economic Performance and Policy Priorities
4
Debt Profile and Credit Ratings
5
Conclusions
Israel’s Global USD Offering
Rating:
A2 (Moody’s)*
A- (Standard & Poor’s)**
A- (Fitch IBCA)*
Size:
USD 500 million
Format:
Fully Registered Global Bond
Maturity:
10 years
Listing:
Luxembourg
Governing Law:
New York
Use of Proceeds: General Government Financing Purposes
Lead Managers: Citigroup and UBS
* Stable outlook
2
** Negative outlook
Discussion Outline
3
1
Introduction
2
Israel: An Advanced Industrialized Economy
3
Economic Performance and Policy Priorities
4
Debt Profile and Credit Ratings
5
Conclusions
GDP Per Capita Matches Industrialized Countries
Per capita GDP (current prices, US dollars)
$
35,000
30,000
25,000
20,000
15,000
10,000
5,000
Source : IMF September 2003
A
U
S
U
K
an
y
G
er
m
Ita
ly
pa
in
S
ru
s
C
yp
d
al
an
Ze
Is
ra
el
G
re
ec
e
al
or
tu
g
P
N
ew
S
4
K
or
ea
ol
an
d
M
ex
ic
o
H
un
ga
ry
P
le
C
hi
ou
th
A
fr
ic
a
0
Highly Skilled and Educated Workforce
…the Product of Investment in Education
Expenditure on education
(% of GDP, 2000)
Percent of population age 25-64 with
12 or more years of education (1999)
9%
100%
8%
80%
7%
6%
60%
5%
4%
40%
3%
2%
20%
1%
Source :OECD Education at a Glance.2004
ra
el
Is
U
SA
K
or
ea
ce
Fr
an
al
U
K
Po
rt
ug
ai
n
Sp
Ja
pa
n
C
ze
ch
R
ep
.
ov
ak
Sl
US
A
n
Ja
pa
ad
a
Ca
n
ra
el
Is
UK
la
nd
Ire
e
G
re
ec
ly
I ta
ga
l
rtu
Po
5
R
ep
.
0%
0%
R&D Focus Adds Competitive Edge
Civilian R&D expenditure as % of GDP (2001)
6%
5%
4%
3%
2%
1%
Source: OECD and Central Bureau of Statistics
6
ae
l
Is
r
m
an
y
K
or
ea
Ja
pa
n
Fi
nl
an
Sw d
ed
en
SA
G
er
U
or
w
ay
C
an
N
ad
et
a
he
r la
nd
s
Fr
an
ce
D
en
m
ar
k
K
N
U
d
la
n
Ir e
Ita
ly
0%
Israeli Tech Companies Are Known for Their
Capacity to Innovate
7
Leading Technology Firms Invest in Israel
8
Importance of Tech Sector Reflected in
Structure of Exports
US$ billions
20
15
46%
10
30%
5
57%
0
13%
9%
1996
2003
Traditional Industries
Source: Central Bureau of Statistics
9
45%
Mixed Industries
High-Tech Industries
Discussion Outline
10
1
Introduction
2
Israel: An Advanced Industrialized Economy
3
Economic Performance and Policy Priorities
4
Debt Profile and Credit Ratings
5
Conclusions
Entering Economic Upswing Following Two-Year
Recession
Growth in GDP (% per annum)
2%
1.7%
1.2%
10%
0.8%
1%
8%
6%
7.1%
5.9%
7.0%
6.4%
0.0%
7.5%
0%
2002H1
2002H2
6.0%
5.3%
3.7%
4%
3.0%
3.3%
2.7%
2.5%
2%
1.3%
0%
11
20
04
F
20
03
E
20
02
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
Source: Central Bureau of Statistics
20
01
-0.9% -0.8%
-2%
2003H1
2003H2
Inflation Under Control, Interest Rates Falling
Year-end inflation rate
Central Bank’s key interest rate
%
20
%
18.0
20
17.6
18
18
16
16
14.5
14
11.3
12
9.4
10
14
10.6
12
8.1
7.0
10
8.6
8
8
6.5
6
6
1.4
1.3
4
4
0.0
2
-1.9
0
2
0
1/99 7/99 1/00 7/00 1/01 7/01 1/02 7/02 1/03 7/03 1/04
-2
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Ministry of Finance and Bank of Israel
12
Exchange Rate Movements: Stable Against the
Dollar, Falling Against the Euro
The Shekel vs. US Dollar and the Currency Basket
5.4
Currency
Basket
5.2
5
4.8
4.6
Dollar
4.4
4.2
13
Source: Bank of Israel
1/
04
/0
3
11
9/
03
7/
03
5/
03
3/
03
1/
03
/0
2
11
9/
02
7/
02
5/
02
3/
02
1/
02
/0
1
11
9/
01
7/
01
5/
01
3/
01
1/
01
4
Israeli Exports on a Rising Trend
Growth in advanced economies
Industrial Exports*
%
$ millions
5
2,000
3.9
4
3.6
3.6
1,800
3.6
3.3
2.9
3
3.0
2.9
1,600
2.0
1.9
2
1,400
0.9
1
1,200
1,000
1/97
Source: Central Bureau of Statistics
14
1/99
1/00
1/01
1/02
1/03
04
F
03
1/98
20
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
19
94
0
*Non-Diamond (Millions of Dollars per month)
Full Access to Key Global Markets Enables Trade
Diversification
39.4%
31.6%
Exports
Imports
50.4%
19.0%
Europe
North America
15.6%
14.3%
Israel
4.3%
1.5%
South/ Central America
Asia
1.2%
1.7%
1.4%
Australia
Africa
11.6%
Source: Central Bureau of Statistics
15
7.5%
Other
0.5%
Tourism Responds to Improved Security Conditions
Number of tourist arrivals
Thousands
Per month
220
200
180
Pope visit
Palestinian
terrorist attacks
Palestinian
terrorist attacks
160
140
120
9/11/01
100
80
60
40
20
0
1995
War in Iraq
1996
1997
Source: Central Bureau of Statistics
16
1998
1999
2000
2001
2002
2003
Markets Point to Recovery of the Tech Sector in Israel
Investment in start-up
companies ($ millions)
NASDAQ
5000
NASDAQ
1200
4500
VC investments in Israel
1000
4000
800
3500
3000
600
2500
400
2000
200
1500
1000
0
1997
17
1998
Source: PWC and Bloomberg
1999
2000
2001
2002
2003
All Time Record of the Stock Market and a Dramatic
Drop in Long Term Yields
%
Index
13
Tel Aviv 25 index
525
12
475
11
10
425
9
375
8
325
10-year non linked
government bond
7
18
Source: Central Bureau of Statistics and the MOF
1/
04
12
/0
3
11
/0
3
10
/0
3
9/
03
8/
03
7/
03
6/
03
5/
03
4/
03
3/
03
6
2/
03
1/
03
275
Spreads in the Secondary Market Reflect
Reduction in Israel’s Risk Premium
Basis points
160
140
Israel 2013
120
100
80
Single-A SSB BIG Index
(7-10 years)
60
Israel 2010
40
20
1/03
2/03
Source: Citigroup
19
3/03
4/03
5/03
6/03
7/03
8/03
9/03
10/03 11/03 12/03
1/04
Foreign Direct Investment Back to Robust Level
Net inflows of foreign direct investment in Israel
$ billions
6
5.0
5
4
3.6
3.5
3.1
3
1.9
2
1.4
1.5
1.8
1.6
1
0.1
0.1
0.3
0.4
0.5
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
20
Source: Bank of Israel
Disciplined Fiscal Policy Capped Budget Deficit
and Slowed Growth of Government Debt
Domestic deficit as percentage of GDP
(excluding net allocation of credit)
Total debt as % of GDP
%
%
6.0
5.6
External Debt
160
Domestic Debt
5.0
Target
4.7
140
4.5
120
4.0
3.8
4.0
100
3.0
2.8
3.0
2.4
80
2.5
60
2.0
40
1.0
0.7
20
21
03
E
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
19
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
Source: Bank of Israel and Ministry of Finance
87
0
0.0
Acceleration of Reforms and Structural Changes
2003 reforms include:
Public sector
cutbacks
Tax
reform
Labor
market
reform
BOT, PFI projects involving
the business sector
22
Pension fund
reform
Transfer
payments
reform
Investment in
infrastructure
Privatization – a Key Element in Enhancing Growth
El Al Israel Airlines, Ltd.: Offering of options and shares
totaling 98% of El Al’s shares
ZIM (Israel navigation company): Sale of all government
holdings in the company (49%)
Bezeq (telecommunication corporation): Sale of 5.25% of
Bezeq’s shares. The company cease to be a State-owned
company
Bank Leumi: Offering of options and shares totaling 6.47%
of the shares. Legislation that will enable GoI to privatize
via TASE
On the agenda:
23
Discussion Outline
24
1
Introduction
2
Israel: An Advanced Industrialized Economy
3
Economic Performance and Policy Priorities
4
Debt Profile and Credit Ratings
5
Conclusions
Israel Becomes a Net Creditor to the World
%
Net external debt as % of GDP*
34
28.6
29
28.0
25.8
22.2
24
19.1
19
14.3
14
10.8
7.7
9
3.7
4
0.5
-1
-2.7
-6
1992
1993
1994
1995
1996
1997
1998
1999
2000
*Including the Public sector, Private sector and the Banking system
25
Source : Bank of Israel
2001
2002
-5.0
Sep.
2003
High Level of Foreign Exchange Reserves Leads the
Way to a Comfortable Liquidity Position
$millions
90%
Foreign Reserves
30,000
Gross Financing Gap (% of foreign reserves)
80%
Liquidity position
25,000
70%
60%
20,000
50%
15,000
40%
30%
10,000
20%
5,000
10%
0%
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Jan04
26
Source: Central Bureau of Statistics, Bank of Israel
Current Account Surplus Strengthens Israel’s
External Accounts
Million $
% of GDP
1,000
0.8%
1%
0.3%
0
0%
-1,000
-1.3%
-1%
-0.6%
-1.3% -1.5%
-2,000
-1.3%
-2%
-1.6%
-2.1%
-3,000
-3%
-3.6%
-4,000
-4%
-3.9%
-4.4%
-5,000
-5%
*
1Q3
02
20
03
Q
20
01
20
00
20
99
19
98
-6%
19
97
19
96
-5.6%
19
19
94
19
93
19
92
19
91
19
90
19
95
-5.5%
-6,000
Source: Central Bureau of Statistics
27
Government Debt has a Favorable Maturity
Structure and Low Reliance on Market Sources
External public sector debt as of December 2003
Source of debt
Foreign banks
1%
Original term to maturity
Foreign
governments &
international
institutions
9%
+5 years
88.6%
State of Israel
bonds
34%
Tradable bonds unguaranteed
10%
28
Source : Bank of Israel February 2004
Tradable bonds
guaranteed by the
US gov.
46%
1-5 years
10.6%
Up to one year
0.8%
Israel’s Credit Rating 1992 - 2004
Rating Agency
Rating
Moody’s
S&P
Fitch
A2
AA-
A1/A+
A2/A
A3/A-
Baa1
/BBB+
Moody's
S&P
Fitch
Baa2
/BBB
Baa3
/BBB-
1992
29
1993
1994
Source: Credit Rating Agencies
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Discussion Outline
30
1
Introduction
2
Israel: An Advanced Industrialized Economy
3
Economic Performance and Policy Priorities
4
Debt Profile and Credit Ratings
5
Conclusions
Conclusions
31
Israel's sovereign credit quality is sound and resilient
Fundamentals compare favorably with higher-rated
sovereigns
Structural reforms in the economy underpin Israel’s
sovereign credit profile and will lead to robust growth
The new geopolitical environment supports the economic
growth
Ongoing support by the Jewish community and strong
alliance with the U.S.
Additional Information...
Web sites addresses:
Ministry of Finance
http://www.mof.gov.il/englishframe.htm
Bank of Israel
http://www.bankisrael.gov.il/firsteng.htm
Central Bureau of Statistics
http://www.cbs.gov.il/engindex.htm
32