The News Behind The News
April 17, 2000
Moody's to Reexamine Israel's Credit Rating
On April 19, 2000, Ha'aretz along with all other Israeli news outlets, proclaimed proudly that "Moody's, the world's largest international credit rating company, announced yesterday its decision to reexamine Israel's present credit rating in an attempt to raise the country's rating to "A" within the coming weeks." By placing Israel in the "A" category, Moody's would be placing Israel among the world's leaders. Have they got it right? Has IASPS got it all wrong?
First, one must remember that this credit rating is a measurement of the government's ability to pay back debts. Now, it so happens, that the Israeli government is very good at living off debt. A recent NBN (entitled, "A Few Small Facts") made the point quite well:
Every now and then a very simple and factual report slips out that gets very little (correction: gets no) worldwide press, but this report contains little tidbits of real facts that belie the tales and myths of the Booming & Zooming Israel.
Thus it was in a Globes article appearing on Monday, March 28, 2000 ("Bank of Israel: Ratio of Public Sector Deficit to GDP - 10 Times Higher than in Industrial Countries"), written by Ze'ev Klein. The few little facts in this piece speak louder than any government sponsored propaganda and the picture these facts paint destroys the myth as well as any might.
You decide, booming and zooming or dooming?
 "According to the report [Bank of Israel report for 1999], the public sector's overall deficit [meaning the government spending more than it takes in] is the largest among developed countries, except Japan."
 "Last year the deficit amounted to more than 4% of GDP, compared with an average of 0.4% in industrialized countries and 1% in European countries."
 "Only Japan has a higher public deficit, representing 5.3% of GDP." [Many attribute Japan's fall from economic grace and its continuing recession precisely the result of too much government spending and involvement in business.]
 "Israel's public sector deficit has retained its high level for five years, despite the fall in the government's budget deficit. The public sector deficit declined by an average of 5% in industrialized countries in this period."
 "According to the Bank of Israel's figures, Israel's public sector expenditure is among the highest in the world, second only to Sweden, whose public sector expenditure represented 54% of GDP last year."
When all is said and done, as long as Israel receives billions of dollars in what economists call Unilateral Transfers (defined as Free Money from abroad such as U.S. aid), the Israeli government will remain one of the world's best debtor nations. Upgrade, upgrade, upgrade. Borrow, borrow, borrow. Does Moody read about the government sector, which accounts (directly or indirectly) for more than half of the work force, the strikes, the pay increases, the reduced productivity, the failure by the government to invest in infrastructure, and more of the same?
In the end it doesn't matter because Moody is concerned about debt repayment and when it looks at the peace process as a way to leverage even more US aid, Moody sees very well that if you want to make a good bet loan to a debtor nation, make it to Israel because if you're really clever, you'll get a loan with a US-guarantee behind it.
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