US embassy cable - 04TELAVIV1839

UNCLAS SECTION 01 OF 02 TEL AVIV 001839 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, IS, ECONOMY AND FINANCE, ISRAELI-PALESTINIAN AFFAIRS 
SUBJECT:  Israeli Economy Pauses following Yassin Killing 
 
 
This cable is classified Sensitive but Unclassified.  Please 
handle accordingly. 
 
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Summary 
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1. (SBU) The jury is out on the economic effect of the 
Yassin killing, but it already appears that tourism is 
taking a significant hit.  While there has been only a 
moderate fall in Tel Aviv Stock Exchange (TASE), the shekel 
has fallen steadily since Monday morning against the dollar. 
Our personal contacts tell us that Israelis are truly 
worried, and staying home.  So are their overseas relatives, 
who in many cases have cancelled their Passover visits to 
Israel.  If the Palestinian reaction leads to increased 
terror over the longer term, the impact will be even more 
significant.  This reality stands in contrast to Ministry of 
Finance statements arguing that the effects will be minimal. 
End Summary. 
 
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Tourism: Is the Canary Still Breathing? 
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2. (U) Historically, heightened security concerns in Israel 
have hit tourism first and most directly.  Until the 
killing, sector trends were positive:  the Hotel Association 
reported recently that night stays in hotels in February 
2004 were 33% higher than the same month a year ago.  This 
is an impressive increase, even taking into account 
preparations for the Iraq conflict last year.  Right now, 
media commentary indicates that tourism cancellations are 
already notable and increasing, and that a longer-term 
escalation of the security situation could be ruinous. 
 
3.  (U) At first, predictions were not dire.  On Wednesday 
March 24, Rafi Farber, Chairman of the Economic Committee of 
the Hotel Administration, said that there had been no mass 
cancellations, but that new reservations were drying up. 
Just one day later, he told Israeli Army radio that tourist 
agencies around the world were starting to get calls from 
panicked tourist groups canceling their trips to Israel.  As 
for the future, Farber said repercussions from the killing 
could lead to a loss of up to three hundred and fifty 
thousand tourists and losses of half a billion dollars. 
 
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Business Conferences On-Track, but Valencia Cancels 
--------------------------------------------- ----- 
 
4. (U) The Yassin killing took place against a background of 
renewed hope in the financial community.  Israeli business 
leaders, who were looking forward to a significant number of 
conferences and delegations scheduled for this spring, are 
closely watching the fate of two back-to-back high- 
tech/venture capital conferences scheduled for next week: 
the Euro Tech Tour, and the Israel Venture Association 
conference.  So far reports indicate cancellations for these 
conferences have been minimal.  Israelis remain on the watch 
of any indication, however, about high-profile, future 
visits.  A Los Angeles Times report on March 24 that the 
security situation in Israel could lead to the cancellation 
of California Governor Schwarzenegger's planned trip to 
Israel in early May received prominent press play.  In its 
March 25 edition, Maariv reported that American insurance 
companies were canceling the validity of travel insurance 
policies to Israel.  Israeli commentators noted these 
disturbing facts as they worried that the increase in 
tensions could negatively affect efforts to increase inward 
investment, which is coming just as there is renewed 
interest in the Israeli market. 
 
5.  (SBU) What really got the Israelis' attention, however, 
was the cancellation of a major, high-profile sports event. 
This was the Spanish club Valencia's refusal to come to Tel 
Aviv next week for a Euroleague playoff basketball game, and 
its decision to forfeit the game instead.  Today's papers 
gloomily predicted that the Euroleague Final Four set for 
Tel Aviv in late April, one of the biggest sporting events 
in Israel in recent years, would be moved to another 
country.  Estimates of the losses run into millions of 
dollars for this event alone. 
 
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Financial Market: So Far, Relative Sobriety 
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6. (U) Foreign exchange and Tel Aviv Stock Exchange (TASE) 
participants demonstrated restraint in the first three days 
following the Yassin killing.  The dollar strengthened by a 
fairly minimal 0.58% from NIS 4.483 on Friday, March 18 to 
NIS 4.5090 on Wednesday, March, March 24.  During trading on 
Thursday, the dollar crossed NIS 4.52, the highest level in 
months, but still not significantly outside its recent 
trading range.  The TASE 25 declined 1.8% the day of the 
killing, and a further 2.4% on March 24. 
 
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Professional Commentary: A Limited Effect, Provided... 
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7.  (SBU) Professional economists believe the Yassin impact 
will not be severe, provided it does not bring with it a 
long-term increase in terror.  Amir Eisenberg, a capital 
markets analyst for the daily Maariv, claimed March 23 that 
market fluctuations were modest relative to the dramatic 
nature of the assassination.  He predicted that, if there 
were no new surprises, the markets would return to normal 
within a day or two. Dr. Yackov Sheinin, economist from the 
Economic Models consulting firm, and a member of the BOI 
Advisory Committee, was interviewed on the "Color of Money" 
radio program on Monday, March 23, regarding implications of 
the Yassin killing on the economy.  Dr. Sheinin indicated 
that there had been "no hysteria" in the financial markets 
following the event.  He indicated that the falls on the 
TASE were very moderate compared to the daily declines of 3 
- 5 percent at heightened periods of escalation in the 
security situation during the last three years.  Sheinin's 
assessment was that if things return to quiet in 2 to 4 
weeks there should not be any serious implications for the 
economy. 
 
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Ministry of Finance Reaction: A One-Time Hit 
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8. (U) The March 23/24 edition of Globes reported that the 
Ministry of Finance views the impact in terms of a one-time 
hit to the economy.  The action, they believe, will 
minimally impact tourism, investment and private 
consumption.  Over the long term, tourism, investment and 
exports are all expected to increase this year and in 2005. 
 
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Comment: Truly Scared Israelis Will Retrench 
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9.  (SBU) We believe the GOI is generally underestimating 
the short-term economic impact of the Yassin killing.  Many 
of our Israeli colleagues and friends are telling us that, 
truth be told, they are extremely worried about the 
Palestinian reaction to the Yassin action.  Malls and 
restaurants are significantly emptier than usual and the 
word on the street is: stay home and enjoy family during 
this holiday season.  This is sure to impact on consumer 
spending and investment. 
 
Kurtzer