הודעת S&P באנגלית

Outlook on Israel Revised to Stable From Positive, 'A-/A-1' FC and AA-/A-1+ LC Ratings Affirmed
S&P Revises Outlk on Israel; Rtgs Affirmed

LONDON (Standard & Poor's CreditWire) Oct. 23, 2000--Following the ongoing increase of political risk as a result of clashes in the West Bank, Gaza, and Jerusalem, and the deep domestic political divisions that have impeded the government of Prime Minister Barak for months, Standard & Poor's today revised its outlook on the State of Israel to stable from positive. At the same time, the State of Israel's local currency ratings of double-'A'-minus/'A-1'-plus and its foreign currency ratings of single-'A'-minus/'A-1' were affirmed.
The violent clashes of the past three weeks coincide with a state of severe domestic government weakness. After months of growing domestic political infighting, several parties left Prime Minister Ehud Barak's governing coalition after the failed Camp David summit in July. This, together with the unabated clashes, has severely hampered normal policy making, and increased the risks of more expansionary economic policies, in particular with regard to next year's budget. Lacking a majority in government, Barak faces the prospect of parliament forcing early elections when it reconvenes after a three-month recess in less than two weeks, unless he succeeds in forming a national emergency or unity government with opposition leader Ariel Sharon and his rightist Likud party.
In the coming months, an uneasy, fragile stability--at best--may be achieved with regard to both the domestic political crisis and the Israeli/Palestinian crisis. Against this background, however, any future Israeli government will have difficulty concentrating on economic policy issues, structural reforms, and the kind of tight, reform-oriented fiscal policy that would be required to keep budget deficits on a declining trend, inflation low, and the economy on a path of high growth.
OUTLOOK: STABLE
Israel's economy has just emerged from years of stagnation. Driven by strong demand for Israeli high-tech exports and healthy tourism earnings, economic growth will be close to 4%-5% this year. In the coming year, however, slowing global demand and the current increase in political risk will reinforce the ongoing domestic demand weakness, and may have a dampening effect on growth. Inflation remains at historical lows. Inflation figures for year-end 2000 should be no more than 1%-1.5% (against a government target of 3%-4%). The inflation-adjusted central government budget deficit is expected to remain well within its 2.5% of GDP target this year on the back of a strong revenue intake. A budget with a deficit target of 1.75% of GDP has been tabled for 2001, but still has to be presented to parliament when it reconvenes at the end of October. The current account deficit will remain insignificant this year, while foreign direct investment inflows have remained strong, further bolstering Israel’s official international liquidity position, Standard & Poor's said. -- CreditWire

Contact:
Konrad Reuss, London, (44) 20 7826-3523
Helena Hessel, New York, (1) 212 438 7349

ISSUER CREDIT RATING
State of Israel
Issuer credit rtg (Local currency) AA-/Stable/A-1+
(Foreign currency) A-/Stable/A-1

RATINGS AFFIRMED
Sr unsecd A-/AA-
Sr sec AAA