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Cablegate: Israeli Economy Pauses Following Yassin Killing

This record is a partial extract of the original cable. The full text of the original cable is not available.

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.

-------
Summary
-------

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.

---------------------------------------
Tourism: Is the Canary Still Breathing?
---------------------------------------

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.

--------------------------------------------- -----
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.

-------------------------------------------
Financial Market: So Far, Relative Sobriety
-------------------------------------------

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.

--------------------------------------------- ---------
Professional Commentary: A Limited Effect, Provided...
--------------------------------------------- ---------

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.

--------------------------------------------
Ministry of Finance Reaction: A One-Time Hit
--------------------------------------------

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.

--------------------------------------------
Comment: Truly Scared Israelis Will Retrench
--------------------------------------------

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

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