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TOP STORIES
TABLE OF CONTENTS:
1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS
1.1 Fischer Says Bank of Israel Will Prevent Deflation
1.2 Drugs Approved by Health Ministry to Help 340,000 Israelis
1.3 Knesset Committee Freezes MK Salaries
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2: ISRAEL MARKET & BUSINESS NEWS
2.1 Spring Air Says 'Shalom' to New Israel Licensee
2.2 ICL Rejects Volkswagen Request To Pull Out Of Joint Venture
2.3 El Al to Launch Direct Flights to Brazil
2.4 Check Point Signs Agreement to Acquire Nokia's Security Appliance Business
2.5 Harmonic Announces Definitive Agreement to Acquire Scopus
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3: REGIONAL PRIVATE SECTOR NEWS
3.1 Papa Bello Enterprises Enters International Agreement for Development the Middle East
3.2 Emirates Launches San Francisco Flight
3.3 Telenity Opens Regional Office in Dubai
3.4 First Multi-Unit Hilton Garden Inn Agreement Signed in the Middle East
3.5 Ingen Technologies Inks Distributor Agreement for Middle Eastern Markets
3.6 Proton Energy Systems Awarded Contract in Qatar
3.7 United Airlines & EGYPTAIR Announce Codeshare Agreement
3.8 Algeria is Water Desalination Project with ERI PX Technology
3.9 Eyelit Selected by Nemotek to Support Moroccan Semiconductor Wafer Fab
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4: ISRAEL MACRO-DEVELOPMENTS
4.1 Midwest Research Institute & Rotem Agree to Establish a Renewable Energy Center in Israel
4.2 Israel & Japan Research Together
4.3 "Making Connections" a New Program to Enhance Scientific Collaborations Between the UK & Israel
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5: ARAB STATE & PAKISTANI DEVELOPMENTS
5.1 Jordan & US Sign MoU to Prevent Illegal Trading Of Radiological Materials
5.2 Jordan's GDP Rises 6.5% In 3rd Quarter
5.3 World Bank to Guide Iraq on Transparency
5.4 GE Snaps Up $3 Billion Iraq Power Contract
5.5 EU – GCC Trade Agreement Unlikely Says France
5.6 First GCC Trade Accord Signed With Singapore
5.7 Qatar Economy Could Grow By 10% In 2009
5.8 Saudi & Qatar Demarcate Borders and Agree To Cooperate
5.9 Standard Chartered Says UAE Growth To Slow to 2.7% in 2009
5.10 UAE Buys US Missiles in $3.3 Billion Deal
5.11 Dubai Tire Trade Tops $1.1 Billion
5.12 US Bechtel Wins Egypt Nuclear Power Contract
5.13 Global Economy & Pirates Cut Suez Canal Traffic in December
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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS
6.1 World Bank Approves €342.8 Million Loan For Turkey
6.2 National Accounts Show Broad Slowdown in Cyprus
6.3 Greek Inflation Drops In November
6.4 Inflation in Bulgaria Eases to 9.1%
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7: GENERAL NEWS AND INTEREST
*ISRAEL:
7.1 Forbiddingly Fatty Chanukah Treat Makes a Lot of Dough
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8: ISRAEL LIFE SCIENCE NEWS
8.1 Topical Dermatology Drug Developer Sol-Gel Inaugurates New Plant
8.2 Environment-Friendly Pesticide Company Botanocap Raises $2.3 Million
8.3 Thales Launches a Friendly Takeover Bid for CMT Medical Technologies
8.4 U.S. Federal Trade Commission Clears Teva's Acquisition of Barr
8.5 St. Jude Medical Acquires MediGuide
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9: ISRAEL PRODUCT & TECHNOLOGY NEWS
9.1 Major UK Water Supplier Deploys ClickSoftware Solutions Suite to Optimize Entire Service Chain
9.2 Voltaire Accelerates Seven of World's Top 10 Most Energy-Efficient Supercomputers
9.3 Mellanox InfiniBand Delivers Leading I/O Performance for New RAID X2-IB Layered Storage Solution
9.4 Alvarion Awarded a $6 Million WiMAX Contract by Costa Rica's Incumbent Operator ICE
9.5 Russian Bank Secures Online Banking With Aladdin Authentication
9.6 Check Point Protects Against Publically Available Zero-Day Internet Explorer 7 Vulnerability
9.7 Elbit Systems' Skylark I LE Selected by MoD as IDF Battalion Level Mini UAV
9.8 RADWIN Chosen for Video Surveillance Project in Jerusalem's 'City of David' Landmark
9.9 Xeround Launches Xeround Intelligent Data Grid Version 2.8
9.10 Siverge Unveils First Single-Chip 2.5 Gbps Carrier Transport Device To Handle Any Functionality
9.11 BitBand Introduces Leading-Edge Solid-State Video Server Line Based on COTS Hardware
9.12 Network Visibility Increases Application Performance with Shunra Software's VE Network Catcher
9.13 Elbit Systems to Perform Airborne Upgrade Projects in Europe Valued at $80 Million
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10: ISRAEL ECONOMIC STATISTICS
10.1 Israel's November CPI Drops On Falling Energy Prices
10.2 Israel's State of the Economy Index Posts Sharp Drop
10.3 Israel's Trade Deficit Reaches $1.2 Billion Per Month
10.4 Israel's Unemployment Rate Unchanged For Fifth Month
10.5 Tourism in Israel Hits Record High for 2008
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11: In Depth
11.1 Israel: Concluding Statement of the IMF Mission
11.2 LEBANON: Moody's Outlook Change To Positive Reflects Lebanon's Proven Resilience To Shocks
11.3 IRAQ: IMF Executive Board Completes Second Review of Stand-By Arrangement
11.4 KUWAIT: 2008 Year in Review
11.5 BAHRAIN: 2008 Year in Review
11.6 BAHRAIN: Fitch Affirms Long-term FCIDR at 'A'; Outlook Stable
11.7 QATAR: 2008 Year in Review
11.8 UAE: Abu Dhabi - 2008 Year in Review
11.9 UAE: Ras Al Khaimah - 2008 Year In Review
11.10 OMAN: 2008 Year in Review
11.11 MOROCCO: Finding Energy
11.12 Pakistan's Economic Comeback - IMF's View
11.13 TURKEY: 2008 Year in Review
11.14 TURKEY: Faltering Reform Drive: Erdogan Striking Nationalist Tones
11.15 GREECE: Politics Rocked by Riots
11.16 GREECE: Current Woes Expose Constraints Reflected In A1 Rating
11.17 BULGARIA: Frozen Funds
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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS
1.1 Fischer Says Bank of Israel Will Prevent Deflation
Bank of Israel Governor Stanley Fischer said he will take action to avoid deflation and prevent the country from following the US and Europe into recession. "We're going to do everything we can," he said on 18 December in an interview in Tel Aviv. Prime Minister Olmert's failure to win Knesset approval for the 2009 budget and a stimulus package means "more of the burden is thrown on monetary policy. We'll try and take up some of the slack." The comments suggest that he isn't done cutting interest rates after lowering the benchmark lending rate four times in the past 10 weeks. The reductions, including two unscheduled cuts, pushed the cost of borrowing to a record low of 2.5%. The central bank is also buying $100 million in foreign currency a day to help weaken the shekel and make exports cheaper.
Fischer, 65, was the first deputy managing director at the International Monetary Fund during the 1997-98 Asian financial crisis. He has presided over four years of economic expansion and growth of more than 5% annually, the strongest run in Israel's 60-year history. With the country's main trading partners in the US and Europe in recession, the Bank of Israel is forecasting domestic product growth of 1.5% next year, the slowest since 2002. Fischer declined to say whether he expects the bank to lower that forecast to show a contraction. Fischer said the Israeli banking system is in "impressive shape at the moment." Rules that bar banks from lending more than 15% of capital to a single borrowing group limited their risk, he said. (JP22.12)
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1.2 Drugs Approved by Health Ministry to Help 340,000 Israelis
The Ministry of Health has added 83 drugs to the "medicine basket," the long list of drugs approved for prescription at significantly discounted prices to Israelis under the national healthcare system. Over 400 drugs were considered for addition to the "medicine basket" this year. The new additions, which will come into effect in January of 2009, will cost an estimated NIS 415 million a year. Approximately 340,000 Israelis are expected to benefit directly from the sharply decreased costs of drugs that, up until now, they were purchasing at full price. The approval committee in charge of selecting the drugs made efforts to include medications for a variety of illnesses, and for patients of all ages. Among the drugs approved in the latest round of additions are Erbitux, a drug used to treat bowel cancer, Faslodex, used to treat breast cancer, Novorapid, an insulin treatment, and Revataz and Isentress, HIV treatments. Asthma inhalers, eye infection antibiotics, anticoagulation drugs, genetic diagnostics for women and medical foods for ill children were also among the newly selected medicines. Israel's cabinet is expected to unanimously approve the additions to the health services basket, since the extra cost was already discussed during the budget talks last year. Minister of Health Ben-Yezri welcomed the additions and noted that the health services basket's cost had increased by NIS 1.5 billion since 2006, at a current annual cost of NIS 25 billion. (IsraelNN23.12)
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1.3 Knesset Committee Freezes MK Salaries
On 23 December, the Knesset House Committee today decided that MKs salaries will be frozen during 2009. MKs currently earn NIS 33,000 each month and together with various bonuses such as a car, their monthly salary was due to be increased by 3% in January. The committee's decision, which was based on the recommendations of the Gronau committee and came up for discussion due to the economic crisis, was unanimously passed. Had the decision to freeze salaries not been taken, then MKs would have enjoyed an income of an extra NIS 1,000 in their monthly pay. MKs also froze their pay hike in 2002 due to the recession then. The current freeze in salaries will save the state NIS 1.4 million annually. (Globes 23.12)
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2: ISRAEL MARKET & BUSINESS NEWS
2.1 Spring Air Says 'Shalom' to New Israel Licensee
Tampa, Florida's The Spring Air Company has entered the $11m Israeli bedding market by joining with leading retailer Dr. Gav (which in Hebrew means "back") to carry its Back Supporter Classic and Four Seasons lineups in its 14 retail showrooms throughout the country. Initially, product is being built in Spring Air's New Brunswick, N.J. plant and is being shipped to Israel. But that will change in the spring when Dr. Gav opens a state-of-the-art manufacturing center in Israel. Plans call for Dr. Gav to represent the brand in the country and sell to other retailers as well. Dr. Gav started its business in 1984 and its showrooms are in leading regional malls and shopping strips. They plan to add four to six more units in 2009. About a third of the retail floor in each showroom is dedicated to mattresses, a third for recliners and the remainder pillows, office chairs and other relaxation and therapeutic products. Founded in 1926, The Spring Air Company is one of the world's largest mattress manufacturing companies with more than 650 employees in nine company owned locations in the United States, and three domestic and 20 international licensee facilities with approximately 1,220 employees. (The Spring Air Company 18.12)
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2.2 ICL Rejects Volkswagen Request To Pull Out Of Joint Venture
In a 16 December notice to the TASE, Israel Chemicals rejected a request by Volkswagen to pull out of their joint venture, Dead Sea Magnesium Ltd. (DSM), and transfer its stake to Israel Chemicals. Volkswagen is also removing its directors from DSM's board. Israel Chemicals owns 65% of DSM and Volkswagen owns 35%. Volkswagen says that the 1996 agreement setting up the joint venture allows it to cancel its partnership. Israel Chemicals disagrees and says that Volkswagen was still obligated to meet its share of DSM's debts to the banks and third parties. (Globes 16.12)
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2.3 El Al to Launch Direct Flights to Brazil
El Al Israel Airlines announced on 15 December that it plans to launch direct flights to Sao Paulo, Brazil in the spring, its first new destination in 10 years. It will have follow-on flights to a wide range of destinations throughout South America. The flight time from Tel Aviv to Sao Paulo will be about 14.5 hours. Details such as frequency of flights and prices will be formulated in the coming month and its plans are conditional upon receiving regulatory approvals, El Al said. The route was one of the routes included in the airline's vision for 2010 to increase its long-haul destinations for business and tourist travelers and to foster incoming tourism. (Various15.12)
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2.4 Check Point Signs Agreement to Acquire Nokia's Security Appliance Business
Check Point Software Technologies signed an agreement to acquire Nokia's security appliance business. The two businesses have collaborated over the past decade to deliver industry-leading enterprise security solutions. Building on this collaboration, Check Point will provide an extended security appliance portfolio developed, manufactured and supported by Check Point. Check Point and Nokia have long provided customers with a range of best-of-breed security solutions, proven in high-performance, mission critical environments. Nokia's security appliance business provides purpose-built security platforms optimized for Check Point firewall, virtual private network (VPN) and unified threat management (UTM) software. About 85% of Fortune 500 companies have bought Nokia's security platforms. The agreement between Check Point and Nokia is expected to close in Q1/09 subject to regulatory approvals and customary closing conditions. Further details of the transaction are not being disclosed at this time. Tel Aviv's Check Point Software Technologies (http://www.checkpoint.com) is the leader in securing the internet. Check Point offers total security solutions featuring a unified gateway, single endpoint agent and single management architecture, customized to fit customers' dynamic business needs. This combination is unique and is a result of their leadership and innovation in the enterprise firewall, personal firewall/endpoint, data security and VPN markets. (Check Point22.12)
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2.5 Harmonic Announces Definitive Agreement to Acquire Scopus
Sunnyvale, California's Harmonic and Scopus Video Networks Limited announced the signing of a definitive agreement pursuant to which Harmonic will acquire Scopus. The acquisition will extend Harmonic's worldwide customer base and strengthen its market and technology leadership, particularly in international video broadcast, contribution and distribution markets. Under the terms of the definitive agreement, which has been approved by the Board of Directors of both companies, Harmonic will pay $5.62 in cash for each outstanding share of Scopus, representing an enterprise value of approximately $51 million, net of Scopus' cash and short-term investments. The proposed acquisition is subject to customary conditions, regulatory approvals and the approval of Scopus' shareholders, and is expected to close in the latter part of the first quarter of 2009.
Rosh HaAyin's Scopus Video Networks Limited (http://www.scopus.net) develops, markets, and supports digital video networking solutions that enable network operators to offer advanced video services to their subscribers. Scopus' solutions support digital television, HDTV, live event coverage and content distribution. Scopus' comprehensive digital video networking solutions offer intelligent video gateways, encoders, decoders and network management platforms. The company's solutions are designed to allow network operators to increase service revenues, improve customer retention and minimize capital and operating expenses. (Harmonic23.12)
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3: REGIONAL PRIVATE SECTOR NEWS
3.1 Papa Bello Enterprises Enters International Agreement for Development the Middle East
Las Vegas, Nevada's Papa Bello Enterprises announced plans for continued overseas expansion by entering a partnership with master franchise development company, Fusion Global Partners. This company will help establish and grow Papa Bello Pizza franchises in SE Asia and throughout the Middle East. Both companies expect the first location under this agreement to open in 2009. Combining SE Asia and the Middle East, the territory defined in the agreement encompasses the following 28 countries: Algeria, Australia, Bahrain, Egypt, Indonesia, Iran, Iraq, Japan, Jordan, Saudi Arabia, Kuwait, Lebanon, Libya, Malaysia, Malta, Morocco, New Zealand, Oman, Philippines, Qatar, Singapore, South Korea, Syria, Thailand, Tunisia, Turkey, United Arab Emirates, and Yemen. Fusion Global Partners is a cross-border, transaction driven firm specializing in facilitating and supporting international development for their clients. With business experience in 34 countries, FGP's primary markets are focused in the Middle East, GCC-MENA regions and South East Asia. Founded in 2005, Papa Bello Enterprises is a Las Vegas, NV based corporation that owns, operates and franchises Italian style eateries in the United States. (PBE17.12)
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3.2 Emirates Launches San Francisco Flight
Emirates Airline launched its inaugural flight to San Francisco on 15 December, extending the Dubai-based carrier's North American services to five destinations. Emirates feels that flights on all US services, including San Francisco, are expected to be at 80% capacity in the coming months. Emirates is trialing a new environmental program during the inaugural San Francisco flight. The airline has implemented several measures to ensure the 16-hour service saves some 2000 gallons of fuel and 30,000 pounds of carbon emissions. The measures include washing the aircraft before take-off to minimize in-flight drag, arranging a priority departure route for an unimpeded ascent and using electrical power on the ground instead of the aircraft's energy-draining auxiliary power unit. The aircraft will also use minimal thrust on landing and a single engine taxi to its gate, while all on-board glass, newspapers, aluminum and paper will be collected for recycling. The airline flies to Los Angeles, Houston, New York and Toronto, and operates services to Sao Paolo in South America. (AB21.12)
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3.3 Telenity Opens Regional Office in Dubai
Monroe, Connecticut's Telenity, a leading provider of next generation converged services platforms and applications for communications networks, announced it will open a regional office in Dubai, United Arab Emirates by January 2009 to serve its existing and future customers and partners in the Middle East and Africa (MEA) region. The opening of the Dubai office demonstrates the company's continued commitment and expansion strategy in the MEA region. The Dubai office located in Dubai Internet City will provide sales and professional services support to Middle Eastern and African network operators and regional partners. Telenity is a leading provider of next generation converged services platforms and applications for communications networks. Telenity's IMS ready converged services solutions include: reusable service delivery and content components enabling rapid service creation, deployment and execution functionalities across multiple services and applications; location gateways; integrated messaging solutions; and value added services. (Telenity 15.12)
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3.4 First Multi-Unit Hilton Garden Inn Agreement Signed in the Middle East
Beverly Hills, California's Hilton Hotels Corporation has entered into a non-exclusive Strategic Development Agreement (SDA) with the Abdulmohsen Al-Hokair Group for Tourism and Development, with the potential to deliver 13 Hilton Garden Inn properties (comprising 2,500 rooms). These properties, which will be managed by Hilton, will be in key locations across the Kingdom of Saudi Arabia. The first property is anticipated to open in 2009 in Riyadh. This landmark agreement marks the entry of the first Hilton Garden Inn, the Hilton Family's focused service brand, in the Middle East and Africa region. Over the next five years, Hilton and Al Hokair plan to introduce Hilton Garden Inn hotels across the Kingdom of Saudi Arabia, in locations such as Riyadh, Al Khobar, Dammam, Jubail, King Abdullah Economic City, Taif, Abha, Tabuk, Hail/Buraydah and Yanbu. Hilton Garden Inn is a focused service brand offering affordable rates for the mid-market traveler. The hotel will feature guest rooms offering a minimum size of 28 square meters (301 square feet), two food and beverage outlets, including a restaurant and lounge area and a number of small meeting rooms. The Saudi's Tourism Higher Authority (THA) has taken significant steps to further the country's tourism potential. Alongside religious tourism, Saudi Arabia boasts a growing potential for major national and international conferences. Hilton has named the GCC (Gulf Cooperation Council) as one of its top ten key development markets internationally, and specifically the Kingdom of Saudi Arabia. (Hilton15.12)
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3.5 Ingen Technologies Inks Distributor Agreement for Middle Eastern Markets
Yucaipa, California's Ingen Technologies, manufacturer of Oxyview and OxyAlert respiratory products, signed with Batterjee Medical Group in Saudi Arabia. The company expects to realize about 1-2% of these markets within 24 months, which would result in a $10m revenue stream during 2009 and 2010. COPD is the fastest growing cause of death in the world's advanced economies. The scale of COPD make it the World Health Organization's third leading cause of death in the developed world by the year 2020 – faster growing than lung cancer, heart disease and stroke. The disease has reached epidemic proportions. The company is now evaluating European distribution. Ingen is an emerging medical device manufacturer that introduced Oxyview into the respiratory COPD market in late 2007, commencing registration and classification approval with the Food & Drug Administration. The company is expanding distribution and OEM partners in North America, Europe, Middle East and Asia. The company owns several issued and pending domestic and foreign patents and trademarks, and anticipates the introduction of its next respiratory product, OxyAlert, in 2009. (Ingen15.12)
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3.6 Proton Energy Systems Awarded Contract in Qatar
Wallingford, Connecticut's Proton Energy Systems announced it has been awarded a contract from Doosan Heavy Industries & Construction to supply HOGEN hydrogen generators for a power plant that provides electricity to Qatalum, the world's largest aluminum smelting plant. Located in Qatar, Qatalum is currently under construction and is slated to begin operations in August 2010. This high quality hydrogen gas will provide cooling to four F-Class GE gas turbines and two steam turbines, which have a combined power output of 1472 MW. Proton Energy is the world's leading supplier of onsite hydrogen generators utilizing PEM (proton exchange membrane) technology, which create high purity hydrogen from de-mineralized water and electricity. While older hydrogen generator designs use liquid caustic electrolyte, HOGEN generators employ state-of-the-art solid polymer electrolyte technology that extends the life and reliability of hydrogen generators, while also reducing the risk of injury to personnel and property damage caused by chemical exposure. Doosan Heavy Industries & Construction of South Korea is a global leader in power and water plant technology, and has built more than 500 nuclear, thermal, combined cycle, hydro power plants and desalination plants around the world. It will now bring the Qatalum plant to fruition, with the help of Proton Energy. (Proton Energy Systems 18.12)
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3.7 United Airlines & EGYPTAIR Announce Codeshare Agreement
United Airlines and EGYPTAIR have signed an agreement to offer codeshare flights, which would expand the international destinations and enhance the frequent flyer benefits offered to customers of both carriers. Beginning in summer 2009, United will place its code on EGYPTAIR flights linking New York Kennedy and London Heathrow with Cairo. EGYPTAIR will place its code on United flights linking New York Kennedy with Los Angeles and San Francisco, and on flights linking London Heathrow with Chicago, Los Angeles, San Francisco and Washington Dulles.
EGYPTAIR is the world-renowned national airline of the Egypt, based in the cosmopolitan city of Cairo. In more than 76 years, EGYPTAIR has experienced extraordinary growth, taken the lead to be the first airline in the Middle East and Africa and the seventh in the world to join IATA and become a treasured brand. In 2004, EGYPTAIR was the first IOSA certified airline in the Middle East and Africa. EGYPTAIR is a member of Star Alliance since July 2008. (United Airlines11.12)
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3.8 Algeria is Water Desalination Project with ERI PX Technology
San Leandro, California's Energy Recovery, Inc. (ERI), a global leader of ultra-high-efficiency energy recovery products and technology for desalination, announced a large-scale energy recovery contract for seawater reverse osmosis (SWRO) desalination in Algeria. The Fouka SWRO Desalination project is designed to produce 120,000 cubic meters per day (m3/day, 31.7m US gallons per day (MGD)). It is scheduled to begin operation in early 2010. The Fouka SWRO Desalination Plant will be located in Tipasa near the city of El Jazair on Algeria's northern coast. The project is being developed by Acciona Agua of Spain and SNC Lavalin International of Canada on a 25 year build, own and operate (BOO) contract basis. The 138 ERI PX-220 energy recovery devices are expected to save nearly 13 MW of energy or over 113,000 MWh per year. In total, ERI is helping to produce over 1.5m m3/day (396 MGD) of drinking water for the Algerian region alone, saving an estimated 440 MW of energy on an ongoing basis. (ERI11.12)
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3.9 Eyelit Selected by Nemotek to Support Moroccan Semiconductor Wafer Fab
Toronto, Ontario's Eyelit, a manufacturing software provider for visibility, control and coordination of manufacturing operations for the aerospace & defense, discrete electronics, semiconductor and photovoltaic (solar) industries, announced that Nemotek Technologie, a company that offers manufacturing and design services of wafer-level cameras, wafer-level Packaging and Wafer-Level Optics for many applications, selected Eyelit's manufacturing software suite to support production in its new wafer fab, located in Rabat, Morocco. (Eyelit11.12)
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4: ISRAEL MACRO-DEVELOPMENTS
4.1 Midwest Research Institute & Rotem Agree to Establish a Renewable Energy Center in Israel
Kansas City, Missouri's Midwest Research Institute (MRI), a United States based not-for-profit organization with more than 60 years of experience in scientific research and development and 30 years of experience in renewable energy research, and Rotem Industries have reached an agreement to jointly establish a Renewable Energy Technological Center (RETC) in the Rotem Industrial Park located in Dimona, Israel. After two years of evaluating the potential for new technology development in the fast-growing renewable energy sector in Israel, MRI and Rotem will leverage their collective scientific and technological expertise and utilize RETC as a center to identify, evaluate and support the development and commercialization of promising new technologies for the global marketplace. Also included in the agreement, MRI and Rotem will collaborate with TASC Capital, a leading Israeli venture capital firm, to invest in promising renewable energy technologies. MRI and Rotem are responsible for organizing and managing the Center, with Rotem providing the facilities and MRI providing expertise in the technical screening and evaluation of potential projects. It is anticipated the Center will be ready for operation in January 2009. Rotem (http://www.rotemi.co.il) is a diversified technology-oriented company with headquarters in the south of Israel. Rotem specializes in evaluating seed technologies, bringing them to market readiness and commercializing the resulting products. (MRI17.12)
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4.2 Israel & Japan Research Together
Israel and Japan signed a memorandum on 11 December detailing a partnership in biological research. The two governments will contribute $1.8m over three years towards combined research efforts. This is the first time that a scientific partnership between the two countries under government backing has taken place. The signing ceremony took place at the Givat Ram campus of the Hebrew University of Jerusalem. Representatives of the Japanese Science and Technology Agency and the director general of Israel's Ministry of Science attended. Israel is one of nine countries with which Japan has signed a research plan, in addition to China, India, Korea, US, Great Britain, France, Germany and Sweden. In 1993, Japan and Israel signed an agreement to cooperate in the fields of science and technology. Since then, the ministers of science have made visits a number of times and even created a joint scientific committee. In this past February, Prime Minister Olmert visited Japan, meeting with Japan's Prime Minister Fukada, on a visit of strengthening relationships between the two countries. Japan Science and Technology Agency (JST) aims to establish Japan as a nation built on the creativity of science and technology by promoting research and development. According to Japan's Ministry of Foreign Affairs, Israel exports $85m in products to Japan annually, including polished diamonds, electrical products and citrus fruit. Concurrently, Israel imports from Japan $1.1b worth of products, including automobiles, machinery and electrical equipment. (IsraelNN11.12)
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4.3 "Making Connections" a New Program to Enhance Scientific Collaborations Between the UK & Israel
Top level research institutions in the UK and Israel will collaborate, thanks to a bold new initiative of Weizmann UK. The program - entitled "Making Connections" - will bring together scientists from the Weizmann Institute of Science in Israel with their counterparts from the University of Oxford, the University of Cambridge, Imperial College London (ICL) and University College London (UCL). The timing of the project's launch is only too significant as it comes amid continuing attempts to impose an academic boycott on Israeli institutions. Indeed, the UCU (UK Union for Higher Education) has just announced that it is ending its academic boycott of Israel. This is the first time since its inception in 1950 that Weizmann UK has provided grants for such an initiative, which is funded entirely by UK philanthropists. As soon as the program was launched, it received 29 applications from the Weizmann Institute - far more than had been anticipated. Of these, 10 projects were shortlisted five were selected for funding by Weizmann UK.
The five winning research programs will focus on brain processes involved in learning and memory, understanding the nature of "dark energy" in the universe, the physical principles that govern the basic processes of living cells, deciphering the molecular events that take place in living cells and the self-assembly of advanced materials.
Weizmann UK, (formerly known as the Weizmann Institute Foundation) was established in the UK in 1950. It is part of a global network of 17 countries, which stimulate support for and awareness of the Weizmann Institute of Science, its research programs, scientists and development projects. The Weizmann Institute of Science, in Rehovot, Israel, is one of the world's top-ranking multidisciplinary research institutions. Noted for its wide-ranging exploration of the natural and exact sciences, the Institute is home to 2,600 scientists, students, technicians and supporting staff. (Weizmann 18.12)
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5: ARAB STATE & PAKISTANI DEVELOPMENTS
5.1 Jordan & US Sign MoU to Prevent Illegal Trading Of Radiological Materials
The Jordan Nuclear Regulatory Commission (JNRC) signed a memorandum of understanding (MoU) with US Department of Energy to prevent illegal trading of nuclear and radiological materials. The MoU was signed by Director General of JNRC Sharaf and US Ambassador to Jordan Beecroft. Under the MoU, the US Department of Energy, through National Nuclear Security Administration (NNSA), will provide technical assistance and equipment. These devices will be distributed on the border centers in Jordan to combat the illegal trading of nuclear and radiological materials. The NNSA will also train Jordanian cadres on how to use these equipment as well as their maintenance. Sharaf expected these devices and equipment to be received by next year, noting that Jordanian cadres will operate these equipment. The cost of the testing device ranged between JD100,000 and JD120,000, he added. (Petra16.12)
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5.2 Jordan's GDP Rises 6.5% In 3rd Quarter
Jordan's gross domestic product (GDP) at fixed market prices rose during the third quarter of this year by 6.5% to JD2,347.6 million compared to JD2,204.1 million during the same period last year. The overall cumulative GDP at fixed prices at the end of the third quarter reached a total of JD6,664.2 million compared to JD6,278.8 million for the same period last year, according to the Ministry of Finance figures. The ministry estimated the GDP at current prices for this year to reach JD12,863 million. Most economic activities contributed to the GDP at different rates. The manufacturing industry and the sectors of finance and insurance contributed to the GDP by 18.1% each. Transport, storage and communication followed at 14.4% while the government services producing sector contributed 12.1%. Wholesale and retail, hotels and restaurants and taxes accounted for 12% each. During the first quarter of this year, the GDP grew by 5.2% while it rose by 6.7% during the second quarter of this year. (Petra24.12)
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5.3 World Bank to Guide Iraq on Transparency
The World Bank announced a program to improve control over the public finance sector in Iraq with the aim of strengthening transparency and accountability. The World Bank's Public Financial Management Reform program for 2009 will work on a variety of efforts in the Iraqi public resource sector. Iraqi regional and provincial governments differ on many levels, though each can provide valuable lessons to one another on capital spending and other measures, the World Bank said. The program will work toward establishing a comprehensive budget manual for Iraqi officials as well as creating budget ceilings and strategies for financial controls. The World Bank said it also would strengthen the work of the Iraqi Treasury at the national and regional level with the goal of modernizing accounting procedures. A final component of the measure would work toward sustainability issues by training Iraqis on budgetary measures. The United Nations and the World Bank launched in 2004 a series of funds to help donor nations provide reconstruction assistance to Iraq. Iraq has struggled since the ouster of Saddam Hussein to allocate financial resources in part because of the security environment and capacity issues at the institutional level. (WB11.12)
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5.4 GE Snaps Up $3 Billion Iraq Power Contract
US power giant General Electric Company has won a $3b contract from Iraqi Ministry of Electricity for supply of power generation equipment and provide much-needed electricity to support Iraq's future economic development. The ministry said the deal was a significant milestone as the country seeks to rapidly develop its energy infrastructure and increase its electricity production. Under the agreement signed by GE with Iraqi Ministry of Electricity, the company will supply 56 heavy-duty frame 9E multi-fuel gas turbines that are capable of providing 7,000 megawatts of electricity to the country. The first of the turbines will be shipped in 2009 and the order will be complete by 2010. About 120 GE power turbines currently operate in the country. Under the deal, GE will also provide technical and management training for the equipment. The government of Iraq plans to install the units at key sites around the country to provide needed support for the electricity grid. The agreement follows the Government of Iraq's previous order with GE in May 2008 for eight gas turbines capable of generating 600 MW to meet short-term power requirements in Iraq. (TradeArabia 16.12)
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5.5 EU – GCC Trade Agreement Unlikely Says France
On 15 December, Anne-Marie Idrac, France's junior minister for trade said that it was unlikely that the European Union will reach a trade agreement with the Gulf Arab states. In October she had said it might be possible to sign an agreement this year. The pact has been much delayed and in June a senior official of the Gulf Cooperation Council warned the group may scrap it. Talks between the group and the EU began in 1990 but were slowed by the GCC agreeing only in 1999 to move towards forming a customs union and a new EU negotiating strategy adopted in 2001 to include the services sector in the talks. As well as seeking to boost trade and investment, the agreement would also have covered political issues such as human rights, illegal immigration and the fight against terrorism. Idrac said protectionism was responsible for the failed deal. Idrac also played down the possibility of reaching agreement in World Trade Organization's Doha round of talks next year. The WTO dropped plans recently to seek a breakthrough for a new trade deal this year risking an increase in protectionism as the world economy suffers its worst crisis in decades. (Various15.12)
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5.6 First GCC Trade Accord Signed With Singapore
On 15 December, the six Gulf oil producers signed a free trade agreement (FTA) with Singapore, the first-ever FTA for the GCC. The GCC and Singapore agreed to enhance cooperation in the air services sector. Such cooperation may include, among other things, concluding air services agreements between one or more of the GCC countries and Singapore. The GCC currently accounts for 40% of Singapore's oil imports. Bilateral trade with the GCC, comprising Saudi Arabia, the UAE, Qatar, Kuwait, Bahrain and Oman, reached a record high of $29.256b in 2007, a 127% increase since 2002. The agreement was signed in Doha between Singapore Prime Minister Lee Hsien Loong and his GCC counterparts, President-in-Office of the GCC Ministerial Council and Qatar Prime Minister Shaikh Hamad bin Jasem Al Thani, and GCC Secretary-General Abdul Rahman bin Hamad Al Attiyah. The GSFTA is a comprehensive free trade agreement covering areas including trade in goods, trade in services, investments, rules of origin, customs procedures, government procurement, electronic commerce and economic cooperation.
The GSFTA allows Singapore-based companies and Singapore Permanent Residents to hold majority stakes in key sectors of the GCC markets. In particular, Singapore gained enhanced access in the UAE, Saudi Arabia and Qatar for construction services, computer services, environmental services and professional services. GCC countries are committed to signing bilateral Investment Guarantee Agreements (IGAs) with Singapore in order to better protect the investments of our businessmen in each other's countries. (Various16.12)
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5.7 Qatar Economy Could Grow By 10% In 2009
Saudi Arabia's The Samba Financial Group forecast on 14 December that Qatar's economy could grow 10.3% in 2009 despite the global financial turmoil as it expands exports of liquefied natural gas, making it the world's fastest-growing economy. Still, real economic growth in the world's biggest exporter of liquefied natural gas would slow from the 19.6% forecast for this year as a credit crunch causes project delays and cancellations. Qatar's strong economic performance is being fuelled mainly by growth in the country's LNG exports. Samba feels that Qatar is less exposed than other Gulf oil exporters to changes in oil prices as its increasing LNG exports are based on a variety of long-term contract prices (often 20-25 years) that vary in their relationship to oil prices. Qatar was on track to increase LNG output capacity to 77m tonnes per year in 2010, Qatar's oil minister said this month. The hydrocarbon sector would expand 14.1% next year while growth in the non-oil sector would fall sharply to 6.6% from 15% this year. Qatar's LNG exports are projected to continue growing strongly, helping keep the fiscal and current account balances in large surplus, despite low oil prices, Samba said. Qatar is forecast to delay or cancel at least some of the $220b in projects it has in the pipeline due to high financing costs and reduced availability of funding. With oil at $40 to $50 a barrel, Qatar's fiscal position would probably shift to deficit, it said. Meanwhile, inflation in Qatar - where per capita income should exceed $75,000 in 2008 - would slow to 9% next year from a record 16.1% this year, Samba said. (Samba14.12)
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5.8 Saudi & Qatar Demarcate Borders and Agree To Cooperate
Saudi Arabia and Qatar have finalized the demarcation of their borders and agreed to enhance cooperation between the once-estranged Gulf Arab countries. The two nations signed agreements to foster cooperation on political, military and security issues, as well as business, economy and media on 16 December. The agreements were signed after the initial meeting of a joint coordination council, chaired by Saudi Interior Minister Prince Nayef bin Abdul-Aziz and Qatar's Crown Prince Sheikh Tamim bin Hamad Al-Thani. In March, Saudi Arabia restored full diplomatic ties with Qatar after a five-year hiatus. Riyadh withdrew its ambassador in 2002 to protest against the coverage by Qatar-funded news broadcaster Al Jazeera of the kingdom. It was also reacting to Qatar's decisions to establish ties with Israel and offer the United States military facilities that were later used to launch the 2003 invasion of Iraq. A senior Arab diplomat said Saudi Arabia appeared to be looking to restore part of its regional role captured by Qatar, which has hosted talks between Lebanese and Palestinian rivals to contain internal tensions. Qatar was instrumental in brokering an agreement in May that helped to end a political deadlock in Lebanon over the nomination of a new president. Saudi Arabia allowed Al Jazeera to cover Islam's hajj pilgrimage this year but the channel is still awaiting approval to re-open its office in the kingdom. (Reuters18.12)
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5.9 Standard Chartered Says UAE Growth To Slow to 2.7% in 2009
Economic growth in the UAE will slow to 2.7% in 2009 as real estate prices tumble, oil prices slip and liquidity conditions tighten, Standard Chartered said on 15 December. Seen as a “small, open economy”, the UAE is particularly vulnerable to the broader global financial downturn, the bank said. Indeed, Standard Chartered's UAE growth forecast is substantially more pessimistic than those of some other banks, with EFG Hermes said that it expects economic growth to slow to 3.1% in 2009. When oil prices were high, the UAE was in a comfortable financial position. However, oil prices have since plummeted more than $100 from their July peak of around $150 a barrel. Standard Chartered expects oil prices to average at $58 a barrel next year, but Standard Chartered highlighted that the country has the finances to increase spending, with budget and current account surpluses in excess of 20%. (SC15.12)
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5.10 UAE Buys US Missiles in $3.3 Billion Deal
The United Arab Emirates has signed a deal worth $3.3b to buy missiles from US firm Raytheon Company. The US Defense Department said in September it had proposed the sale of air defense systems and helicopters to the UAE with a total potential value of more than $9 billion. The main item in the Pentagon-proposed package was Terminal High Altitude Area Defense (THAAD), worth up to $7 billion. The system is built by Lockheed Martin Corporation with a system radar from Raytheon. The deal was to buy Patriot missiles. The proposed package included up to $121 million for Patriot Advanced Capability-3 Missile Systems from Raytheon and Lockheed Martin. Gulf Arab nations have voiced concern over Iran's nuclear program and urged a peaceful solution to a standoff between Tehran and Washington over the Iranian atomic plans. In recent years, the UAE has acquired advanced weapons systems from several countries, including the United States.-(Reuters 20.12)
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5.11 Dubai Tire Trade Tops $1.1 Billion
The direct trade in tires for commercial and passenger cars in Dubai is valued at more than $1.13 billion last year and the growth trend is expected to rise further next year. Commercial tires worth $370m for buses and trucks were imported to Dubai last year, mainly from Japan, China and India. Out of this number, Dubai consumes almost 64%, re-exporting 36% to Iran, Iraq, Saudi Arabia and Africa. The commercial vehicle market is an essential industry in the UAE and an increase of 35% is expected from this year to 2012. The positive trend for tire industry is not just limited to the UAE, but the entire Middle East is characterized by a diverse structure of economies, climates and transport conditions. The lack of railway connections on the Arabian Peninsula, forces most of the overland-transport on the road, making it a high-volume sales territory for tire manufacturers. The vehicle industry in the region is one of the fastest growing markets worldwide. (TradeArabia18.12)
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5.12 US Bechtel Wins Egypt Nuclear Power Contract
The US company Bechtel Power has won a 10-year contract worth $180 million to consult on and help design Egypt's first nuclear power station, state media said on 22 December. A committee formed from different government bodies selected Bechtel from seven other corporations, Egypt's state news agency MENA quoted Minister of Energy and Electricity Younis as saying. Younis said Bechtel would be charged with evaluating and selecting from different nuclear energy technologies on the international market, choosing sites for reactors and applying international safety standards. Further consultations will be held with Bechtel before signing the consult and design contract, MENA said, with Bechtel also to prepare the way for a separate tender for the construction of the power station. In October 2007, President Hosni Mubarak decided to relaunch Egypt's nuclear energy program, which started with the Soviet Union in 1961 but was frozen following the 1986 nuclear disaster at Chernobyl in the Ukraine. Reports have said that the first reactor is expected to be built at Dabaa on the Mediterranean coast at a cost of $1.5 billion to $1.8 billion. Egypt, which ratified the nuclear Non-Proliferation Treaty in 1981, seeks a nuclear weapons-free Middle East and regularly criticizes Israel for its undeclared nuclear arsenal. (AFP24.12)
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5.13 Global Economy & Pirates Cut Suez Canal Traffic in December
The global economic slowdown and piracy have combined to sharply bring down Suez Canal traffic. The number of vessels and cargo ships using the Suez Canal has fallen considerably in December, whereas it was light in November. Some 46 vessels used the canal on 17 December, whereas the average daily passage for October was 62 ships. For the month of December, the volume of traffic is expected to have fallen by at least 7% compared to the same month last year. The fall is attributed to the global financial crisis and the slowdown in world trade as well as piracy [off Somalia] which has pushed many shipping lines to avoid the canal," the official said. The slowdown in Suez traffic was expected to extend into 2009, after a month whose revenues of an estimated $419.8 million will be the lowest monthly total since April. The Suez Canal is Egypt's third-largest source of revenue after tourism and remittances from expatriate workers. (AFP18.12)
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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS
6.1 World Bank Approves €342.8 Million Loan For Turkey
On 16 December, the World Bank Board of Executive Directors approved a second Competitiveness and Employment Sector Development Policy Loan (CEDPL 2) for Turkey in the amount of €342.8 million (approximately $500 million). The CEDPL series of loans supports the Turkish Government's program of legal, institutional and structural reforms aimed at promoting growth and job creation. The second operation in the series, CEDPL 2 supports policies implemented since mid-2007 in three broad areas including the investment climate, the financial sector, and employment and skills. The investment climate includes the new research and development law, the reform of customs administration, the amendment of the Land Registry Law, and the further advancement of privatization. The financial sector includes the new Insurance Law as well as new regulations to improve corporate governance in the capital markets, which will help to mobilize domestic and foreign savings. The employment and skills includes the first phase of the labor market reform as part of a broader strategy to expand job opportunities in Turkey. The CEDPL 2 is a fixed-spread Euro-denominated loan, with a final maturity of 23.5 years, including a grace period of 12 years. (WB17.12)
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6.2 National Accounts Show Broad Slowdown in Cyprus
Full national accounts data show that the slowdown in Cyprus was fairly broad based in Q3/08 and that public spending prevented the economy from slowing further. On 10 December, the Cypriot Statistical Service confirmed that real GDP growth had slowed in the third quarter to 3.5% from 3.9% in the second. The sharpest slowdown was witnessed in the sector comprising wholesale and retail trade, hotels and restaurants, where growth slowed from 3.7% in the second quarter to 2.5% in the third. This sector is affected by tourism, which has been performing poorly. There was also a significant slowdown in the construction sector, where growth slowed from 4.5% in the second quarter to 3.8% in the third. However, the financial services sector also took a hit, slowing from growth of 4.6% to 4.0%. Industry, comprising manufacturing, mining, quarrying, electricity, gas and water supply, slowed only marginally, from 3.1% to 2.9%. The data also show that public spending was a key factor in helping to keep the economic growth rate fairly high. Public-sector activities, including health and education, actually accelerated, from growth of 4.6% in the second quarter to 4.9% in the third quarter. (FM11.12)
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6.3 Greek Inflation Drops In November
Inflation in Greece decreased from 4% to 3% in November, compared to October, according to data by the Eurostat statistical service on 17 December. As regards the eurozone, inflation dropped from 3.2% in October to 2.1% in November, while a year ago it had been 3.1%. In the European Union, inflation decreased from 3.7% to 2.8% and a year ago it was 3.1%. In November, the lowest inflation rates were recorded in Germany and Portugal (1.4% each) and the highest in Latvia (11.6%), Lithuania (9.2%) and Bulgaria (8.8%). Compared to October, inflation decreased in November in all 27 EU member-states. (HRI18.12)
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6.4 Inflation in Bulgaria Eases to 9.1%
Bulgarian consumer price inflation dropped to 9.1% year-on-year in November after easing to 10.9% in October, mainly due to a drop in fuel prices, statistics office data showed. On a monthly basis, consumer prices dropped 0.1% after a 0.5% increase in October, the data showed. The Socialist-led government expects consumer price inflation to stay below 10% at the end of this year due to the fading impact of high price growth a year earlier and weaker consumption due to an economic slowdown. Food prices in November rose 0.4% on a monthly basis mainly due to hikes in the prices of meat and vegetables, but their growth was offset by a 0.4% drop in both non-food prices and services. (Kathimerini13.12)
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7: GENERAL NEWS AND INTEREST
*ISRAEL:
7.1 Forbiddingly Fatty Chanukah Treat Makes a Lot of Dough
According to a survey of the Manufacturers Association of Israel, Israeli bakeries report a 4% drop in Chanukah doughnut sales, in comparison with last year's revenues. Nevertheless, Jewish residents of Israel will still consume about 17.5 million doughnuts with a financial outpour of about NIS 54 million, according to the survey. On average, an Israeli will eat three to four doughnuts – popularly known as sufganiyot – during the Chanukah season. Although the eight-day holiday started on 21 December, the sales of the Chanukah treat began two months ago. A new invention this year is the frozen doughnut variety, which can be quickly heated in a household oven. The price for half a dozen frozen doughnuts runs between NIS 17 and 18 (about $4.29 to $4.56).
The custom of eating foods fried in oil is a culinary way of commemorating the Chanukah miracle after the Maccabees won the battle against the Greeks ruling Israel. Eager to rededicate the Temple in Jerusalem, the Maccabees found a small flask of olive oil, enough to light the Temple menorah for one day. Miraculously, the oil burned for eight days, allowing the menorah to burn continuously until additional olive oil supplies could be obtained. While the favored fried Chanukah treat of Israelis is the doughnut – filled with red jelly, caramel or chocolate – most North American Jews prefer latkes, a grated potato-and-onion pancake fried in oil and served with sour cream or apple sauce. It is unknown how many “fat-free” dieters cheat during the eight days of Chanukah and indulge in the traditional holiday food. (IsraelNN21.12)
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8: ISRAEL LIFE SCIENCE NEWS
8.1 Topical Dermatology Drug Developer Sol-Gel Inaugurates New Plant
Ness Ziona's Sol Gel Technologies (http://www.sol-gel.com), a specialty pharmaceuticals company, unveiled new Israel based state-of-the-art facilities for the development of innovative topical dermatology drugs. The new plant includes sophisticated research, development and analytical laboratories, pilot production facilities as well as management offices. Sol-Gel's new facilities are part of the company's strategic decision to focus on pharmaceutical products and to play an active role in the commercialization of topical drugs. The new laboratories and offices are located in the Weizmann Science Park in Ness Ziona near Tel Aviv. One current collaboration involves the development of a new generation of anti-acne kits. This and other products in Sol-Gel's robust pipeline are based on innovative topical delivery technologies that enhance the efficacy and safety of drugs and enable synergistic combinations of various pharmaceuticals. These technologies lead to better products and improve their life cycle management. At the core of Sol-Gel's technologies are unique, patented methods of microencapsulation in silica, designed to provide precise, controlled delivery of topically-applied drugs. (Sol Gel15.12)
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8.2 Environment-Friendly Pesticide Company Botanocap Raises $2.3 Million
BotanoCap has raised $2.3m from Swiss holding company BHCO Group, a current investor, at a company value of $11.3m. BotanoCap is developing patented proprietary environmentally friendly pesticides and disinfectants based on microcapsules of essential oils. BotanoCap is collaborating with Mekorot National Water Company to develop pesticides for water sources and drinking water. BHCO has an office in Israel and has invested in several Israeli cleantech start-ups in the water purification, renewable energy, waste treatment and air pollution solutions industries. Ashkelon's BotanoCap (http://www.botanocap.com) has developed patented novel technology relates to microcapsules of essential oils, processes for the preparation thereof and their application as green products for agriculture and the consumer market. The Company's invention also provides the process and tools for the preparation of essential oils products in very efficient and cost effectiveness methods. (Various14.12)
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8.3 Thales Launches a Friendly Takeover Bid for CMT Medical Technologies
France's Thales has filed administrative documents with the French market authority AMF with a view to acquiring all the issued capital of CMT Medical Technologies. Under the terms of the offer, CMT shareholders would receive €5.65 in cash for each CMT share, valuing the company at approximately €21.5 million on a diluted basis. Such offer is recommended by the board of CMT Medical Technologies. Headquartered in Yokneam, Israel, CMT (http://www.cmt-med.com) is a major supplier of imaging products to medical equipment OEMs, mainly in Asia and the United States. The company generated approximately $22 million in revenues in 2007. The acquisition of CMT is part of Thales's growth strategy in the market for medical imaging solutions as a critical partner to OEM providers. The Israeli company would complement Thales's medical detectors portfolio, in particular by adding capabilities in clinical image processing and by inducing easy integration into medical X-Ray equipment. Thales values CMT's management and employees, providing unique and state-of-the-art digital imaging solutions, and intends to leverage Yokneam facility for the benefit of its customers. Thales is a leading international electronics and systems group, addressing defense, aerospace and security markets worldwide. Thales employs 68,000 people in 50 countries with 2007 revenues of €12.3 billion. (Thales18.12)
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8.4 U.S. Federal Trade Commission Clears Teva's Acquisition of Barr
Teva Pharmaceutical Industries and Barr Pharmaceuticals announced that the U.S. Federal Trade Commission (FTC) has accepted the proposed consent order in connection with the pending acquisition of Barr by Teva and granted early termination of the Hart Scott Rodino waiting period. Under the consent order that has been executed by the parties and accepted for public comment by the FTC, Teva and Barr are required to divest certain formulations of 16 overlapping on-market generic drugs, representing approximately $60 million in the companies' annual sales, and 13 overlapping pipeline generic drugs. With the approval of the European Commission earlier today, the parties have now obtained all regulatory approvals required to close the transaction and, accordingly, have scheduled a closing date of December 23, 2008. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Israel, is among the top 20 pharmaceutical companies in the world and is the leading generic pharmaceutical company. The company develops, manufactures and markets generic and innovative pharmaceuticals and active pharmaceutical ingredients. Over 80% of Teva's sales are in North America and Western Europe. (Teva23.12)
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8.5 St. Jude Medical Acquires MediGuide
St. Paul, Minnesota's St. Jude Medical and Israel's MediGuide announced the signing of a definitive merger agreement and simultaneous closing of the merger whereby St. Jude Medical has acquired all of the outstanding shares of MediGuide Inc., including the 41.3% interest (on a fully-diluted basis) owned by Elbit Systems for $283 million in cash and the assumption of net liabilities totaling approximately $17 million. Terms of the transaction provide for St. Jude Medical to pay $138 million of the purchase price in December 2008, with the balance due in two subsequent payments of $111 million in November 2009 and up to $34 million in April 2010. With this transaction, MediGuide will become part of the St. Jude Medical Atrial Fibrillation Division.
MediGuide has developed a sophisticated navigation system, the Medical Positioning System (gMPS), which uses proprietary technology for real-time tracking of sub-millimeter sized sensors. These sensors can be mounted on needles, guide wires, catheters, or other medical devices used for minimally-invasive intra-body navigation. The 3-D position and orientation of the sensors can be calculated in real time and projected graphically on a fluoroscope, CT, MRI, ultrasound or 3-D reconstructed image of the anatomy. The gMPS system is intended to provide a comprehensive solution for motion artifacts caused by patient heartbeats, respiration or other movements. The goal of the gMPS system is to increase the accuracy and amount of information available to a physician during a catheterization or other minimally invasive procedure while reducing the risk of exposure to radiation for the patient and medical team. MediGuide's gMPS technology and its gMPS Enabled Guided Measurement Catheter (GMC) are European CE Mark certified and are currently limited to investigational use only in the United States.
Haifa's MediGuide (http://www.mediguide.co.il) is the provider of technology, solutions and applications for intra body navigation and less invasive procedures with a special focus on cardiology. Based on its proprietary gMPS technology, MediGuide brings the ability to navigate gMPS Enabled Devices (catheters, wires and other devices equipped with a sub millimeter gMPS sensor) in the MPS Ready Cathlab environment, co-developed by MediGuide in collaboration with the leading imaging companies. (St. Jude Medical 23.12)
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9: ISRAEL PRODUCT & TECHNOLOGY NEWS
9.1 Major UK Water Supplier Deploys ClickSoftware Solutions Suite to Optimize Entire Service Chain
ClickSoftware Technologies announced that Wessex Water, one of the UK's largest water suppliers, has selected and started to implement ClickSoftware's ServiceOptimization Suite. This includes ClickSchedule, ClickPlan, ClickForecast and ClickAnalyze to ensure its field technicians arrive on time, work productively and meet customer and regulator expectations. Wessex Water provides water services to 1.2m people and sewage services to 2.5m people over a 10,000 square-kilometer region in the Southwest of England. Wessex Water will deploy ClickSoftware's ServiceOptimization Suite to manage field technicians across several lines of business including clean water, waste water, infrastructure, metering and customer appointment booking. First to be implemented will be ClickSchedule to ensure all on-site visits for installation, maintenance and repairs occur on time and efficiently. Street-level routing capabilities will automatically provide the best route for technicians to take between jobs, ensuring they spend more time serving customers, not traveling. The company will use ClickForecast to predict future demand for maintenance and repair on the hundreds of thousands of pumps and other equipment it has installed. ClickPlan will ensure Wessex Water has the right capacity to meet the demand for all of the maintenance, repair and installation work predicted by ClickForecast.
Givat Shmuel's ClickSoftware (http://www.clicksoftware.com) is the leading provider of mobile workforce management and service optimization solutions that create business value for service operations through higher levels of productivity, customer satisfaction and cost effectiveness. Combining educational, implementation and support services with best practices and its industry-leading solutions, ClickSoftware drives service decision making across all levels of the organization. From proactive customer demand forecasting and capacity planning to real-time decision making, incorporating scheduling, mobility and location-based services, ClickSoftware helps service organizations get the most out of their resources. (ClickSoftware 11.12)
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9.2 Voltaire Accelerates Seven of World's Top 10 Most Energy-Efficient Supercomputers
A new report announced last month found that Voltaire's switching technology is connecting the world's most energy-efficient supercomputers, according to the latest supercomputing “Green500 List” announced by the Green500.org. The top seven supercomputers on the list are all comprised of IBM BladeCenter servers and connected with Voltaire Grid Director InfiniBand switches, which deliver high performance coupled with low power consumption. Voltaire switches also provide the connectivity for the world's fastest petaflop supercomputer at Los Alamos National Laboratory, which took the No. 7 position on the list for energy performance. In addition, Voltaire delivered the high-performance interconnect for many other supercomputers on the list, used for a variety of applications such as astrophysics, energy, pharmaceutical and global climate research. Delivering 20 Gb/s InfiniBand performance – with 40 Gb/s solutions expected to be available later this month -- Voltaire director-class switches require on average only 5 watts of power per port, making them much more energy efficient than10 Gigabit Ethernet core switches that can consume between 18 and 100 watts of power per port.
Herzliya's Voltaire (http://www.voltaire.com) designs and develops server and storage switching and software solutions that enable high-performance grid computing within the data center. Voltaire refers to its server and storage switching and software solutions as the Voltaire Grid Backbone. Voltaire's products leverage InfiniBand technology and include director-class switches, multi-service switches, fixed-port configuration switches, Ethernet and Fibre Channel routers and standards-based driver and management software. (Voltaire 16.12)
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9.3 Mellanox InfiniBand Delivers Leading I/O Performance for New RAID X2-IB Layered Storage Solution
Mellanox Technologies and RAID, a customized storage solution and services provider specializing in leading edge technology, announced that Mellanox's ConnectX 40Gb/s InfiniBand adapters deliver the leading I/O performance for RAID's X2-IB. The X2-IB is a new InfiniBand layered storage solution designed for the most demanding high-performance computing applications for government, energy, finance, research, simulation, digital media and internet service applications. The X2-IB is capable of sustaining 80 to 160GB/sec on both reads and writes, can scale to over 1500 hard drives and uses 128GB of cache, and provides the latest technology to assure data integrity, self-healing, energy conservation and includes a complete suite of optional enterprise storage services. Yokneam's Mellanox Technologies (http://www.mellanox.com) is a leading supplier of semiconductor-based, interconnect products to world-class server, storage and infrastructure OEMs servicing Fortune 500 data centers, the world's most powerful supercomputers, and mission critical embedded applications. (Mellanox15.12)
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9.4 Alvarion Awarded a $6 Million WiMAX Contract by Costa Rica's Incumbent Operator ICE
Alvarion announced that it was awarded a $6m contract by ICE (Instituto Costarricense de Electricidad), Costa Rica's leading incumbent operator for telecommunications and electricity. Under the agreement Alvarion will implement a turnkey project to provide advanced broadband services, deploying its 4Motion solution with its WiMAX Forum Certified BreezeMAX 2500 platform, and enabling ICE to enhance its network performance while providing customers with advanced means of communication. The 802.16e network rollout, using the 2.5 GHz frequency band, is expected to commence in San Jose and the rural areas of Limon. As part of this turnkey project, Alvarion will provide ICE with thousands of CPEs (customer premises equipment), radio planning, system integration and configuration support, maintenance services at customer premises, training courses, and more. Telerad is Alvarion's local partner for this project. Tel Aviv's Alvarion (http://www.alvarion.com) is the largest WiMAX pure player ensuring customer long-term success with fixed and mobile solutions for the full range of frequency bands. Based on its OPEN WiMAX strategy, the company offers superior wireless broadband infrastructure and an all-IP best-of-breed ecosystem in cooperation with its strategic partners. (Alvarion 15.12)
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9.5 Russian Bank Secures Online Banking With Aladdin Authentication
Aladdin Knowledge Systems announced that Alfa-Bank, one of Russia's largest privately owned financial institutions, has deployed 20,000 Aladdin eToken USB smartcard devices, providing its online customers with secure access to its Web-based financial services. Using Aladdin eToken, customers can process electronic documents, monitor transactions, contact the bank, as well as import and export data to Alfa-Bank's accounting systems. Due to globally increasing rates of phishing, malware and other Web-based threats, Alfa-Bank required an advanced authentication solution to provide additional protection for its three million customers worldwide to ensure secure banking through its online system. The bank chose Aladdin eToken based on its ability to meet strict criteria for advanced security, manageability and reliability.
Kiryat Arye, Petah Tikva's Aladdin Knowledge Systems (http://www.Aladdin.com) is an information security leader. Aladdin eToken is the world's #1 USB-based authentication solution, offering identity and access management tools that protect sensitive data. Aladdin SafeWord two-factor authentication technology protects companies' important information assets and applications. Aladdin HASP SRM boosts growth for software developers and publishers through strong anti-piracy protection, IP protection, and secure licensing and product activation. Aladdin eSafe delivers real-time intelligent Web gateway security that helps protect data and networks, improves productivity, and enables compliance. (Aladdin15.12)
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9.6 Check Point Protects Against Publically Available Zero-Day Internet Explorer 7 Vulnerability
Check Point Software Technologies announced that users of VPN-1 R65, R62, and VSX NGX R65 are protected from an unpatched, publically available Microsoft Internet Explorer 7 vulnerability. SmartDefense Services subscribers gain immediate protection against the threat, which if exploited allows an attacker to execute arbitrary commands and access information residing on a targeted machine. Made public a few days ago on Chinese online forums, the Internet Explorer 7 browser flaw affects users running Windows XP Service Packs 2 and 3, Windows Vista, Windows Vista Service Pack 1, Windows Server 2003 Service Packs 1 and 2, and Windows Server 2008. The attack is a typical drive-by download, where hackers infect existing Web sites - or set-up their own rogue Web sites - and then redirect or trick users into going to them. The moment the victim lands on the site, hackers slip malicious software quietly onto the victim's computer through a flaw in the browser or a browser plug-in. The malicious software is often used to silently steal sensitive data by secretly logging everything the victim types. SmartDefense protection refutes this attack by preventing the exploitation of the underlying browser's flaw.
Check Point SmartDefense provides intrusion prevention capabilities that are integrated into Check Point gateways. SmartDefense is updated by SmartDefense Services, which provide ongoing and real-time updates and configuration advisories for defenses and security policies. SmartDefense protections are developed and distributed by SmartDefense Research and Response Centers located around the globe.
Tel Aviv's Check Point Software Technologies (http://www.checkpoint.com) is the leader in securing the internet. Check Point offers total security solutions featuring a unified gateway, single endpoint agent and single management architecture, customized to fit customers' dynamic business needs. This combination is unique and is a result of their leadership and innovation in the enterprise firewall, personal firewall/endpoint, data security and VPN markets. (Check Point12.12)
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9.7 Elbit Systems' Skylark I LE Selected by MoD as IDF Battalion Level Mini UAV
Elbit Systems was selected by the Israeli Defense Ministry to answer the battalion-level IDF tender, calling for a wide procurement of mini-UAVs for all IDF Ground Forces battalions, including training and logistics support. The procurement potential is evaluated great expense, in accordance with IDF's requirements and procurement process. Elbit Systems' Skylark I LE has been selected by the IDF following an extensive evaluation process, including operational ability to answer the high requirements of the IDF, based on its rich operational experience. The Skylark I LE is based on the accumulated experience acquired by the Skylark I, in thousands of operational hours performed, in various battlefields, including Israel, Iraq and Afghanistan. Elbit Systems' UAV family has served the IDF in recent years in counter terror missions and took an operational part in Israel's second Lebanon War. The upgraded UAV includes additional unique features, to significantly improve its operational capabilities and offers the IDF a highly advanced UAV. Haifa's Elbit Systems (http://www.elbitsystems.com) is an international defense electronics company engaged in a wide range of defense-related programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance ("C4ISR"), unmanned air vehicle (UAV) systems, advanced electro-optics, electro-optic space systems, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and radios. (Elbit Systems16.12)
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9.8 RADWIN Chosen for Video Surveillance Project in Jerusalem's 'City of David' Landmark
RADWIN announced that its WinLink 1000 wireless systems were deployed in the City of David (http://www.cityofdavid.org.il) landmark in Jerusalem, Israel for video surveillance transmission. The Mer Group, a leading Israeli turnkey solutions provider, was in charge of project design and deployment. The City of David is the actual site of the biblical city of Jerusalem. The historic landmark draws tens of thousands of visitors yearly. To ensure visitor safety and prevent crime and vandalism, the City of David Foundation deployed more than 150 video cameras in the site. After a thorough competitive evaluation, the Foundation selected and deployed RADWIN's WinLink 1000 wireless point-to-point systems to transmit video from the cameras back to a central control center, from where a security team can detect and respond to events on the spot. Tel Aviv's RADWIN (http://www.radwin.com) delivers wireless backhaul and broadband access solutions in the sub-6GHz space, empowering carriers and service providers to connect subscribers everywhere. Established in 1997, RADWIN has installations in over 110 countries around the world. (RADWIN 16.12)
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9.9 Xeround Launches Xeround Intelligent Data Grid Version 2.8
Xeround announced the launch of the Xeround Intelligent Data Grid version 2.8. Xeround's vision is to enable cloud computing infrastructures for its customers by delivering data management within a cloud and data federation between clouds. This release improves upon Xeround IDG's capabilities for real time, scalable database virtualization that unifies data across multiple networks and businesses while still improving total cost-of-ownership. Customers implementing Xeround IDG version 2.8 can now extend the life and usage of existing data assets to accelerate the time to market of new products and services while dramatically reducing costs. Xeround IDG is built on a patented technology that can unify data across multiple networks and businesses in real-time and make that information available across a company's entire ecosystem of network elements and applications. Unlike point products or custom solutions, Xeround IDG is a scalable, reusable, easy-to-implement distributed architecture that increases the efficiency of existing infrastructures. Xeround (http://www.xeround.com) provides database virtualization software to companies such as service providers looking to reduce costs and enable faster time-to-market of new products and services. Based on its patented Intelligent Data Grid (IDG), Xeround's innovative technology unifies data across multiple networks and businesses in real-time. The company is based in Bellevue, Wash. with research and development in Yehud, Israel. (Xeround16.12)
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9.10 Siverge Unveils First Single-Chip 2.5 Gbps Carrier Transport Device To Handle Any Functionality
Siverge Networks announced the industry's first single-chip carrier transport device that enables equipment manufacturers to develop converged linecards and systems capable of handling any port, service, channelization and functionality while supporting both TDM and packet-based networks. Pioneering a new category of packet transport devices, these devices will enable the first 10Gbps, fully channelized "any service, any protocol" linecards (16 times more bandwidth and density than the high end of channelized linecards which exist today). The Griffin family consists of four devices, each of which is available in three speed grades. The family will allow carriers and network providers to significantly reduce capital and operating expenditures while optimizing investments in next-generation packet-based networks and ensuring service continuation for all legacy data and TDM services. For system vendors, the Griffin family will enable new applications while greatly reducing development time and investment, bill-of-material costs and time to market. Carriers, network providers and system vendors alike will benefit from major reductions in product inventory and maintenance.
Herzliya's Siverge Networks (http://www.siverge.com) is a pioneering fabless semiconductor company at the forefront of networking technology. Siverge has developed unique core technology, enabling system vendors to build low-cost high-speed packet based communication systems for fast expanding carrier networks. Siverge's patent-pending packet transport SoC re-defines the technology limits of networking devices by integrating 10x more functionality and channel/port count. Siverge devices enable exceptionally high capacity, true multi-service solutions and system consolidation for fixed and mobile backhauling networks. (Siverge15.12)
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9.11 BitBand Introduces Leading-Edge Solid-State Video Server Line Based on COTS Hardware
BitBand introduces BitBand Vision Ti4, a solid state flash based video server with highest streaming throughput, designed to provide maximum flexibility and performance to Service Providers deploying IPTV services. The new Vision Ti4, a part of BitBand's Content Delivery Network solution, offers the advantages of rapid cost reductions in solid-state drives and the flexibility of using Commercial-Off-The-Shelf (COTS) hardware. The Ti4 stands out against alternative solutions based on limited life-cycle proprietary hardware. As flash disk drives become a commodity, BitBand extends its offerings to implement SSD (Solid state Drive) technology into the ultimate performance, most scalable COTS server architecture. Leveraging the company's advanced multi-tier caching technology and the flexibility of its architecture, the new Ti4 will be a perfect fit into various deployment scenarios and business models for creating a comprehensive IPTV platform. Netanya's BitBand (http://www.bitband.com) offers live and on-demand video content delivery technology for broadband IP networks. It forms the most scalable, quick-to-deploy and cost-effective IPTV solution existing today. With a flexible network centric approach that accommodates hybrid or distributed network environment, BitBand enables multiple IPTV business models and services such as automated intelligent CDN (Content Delivery Network), VOD, scalable time shift TV, Fast Channel Change and NPVR. The company's experience and expertise support numerous commercial deployments and subscribers worldwide. (BitBand 18.12)
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9.12 Network Visibility Increases Application Performance with Shunra Software's VE Network Catcher
Shunra Software announced version 4.6 of VE Network Catcher, a network behavior recording tool which brings the real-world network environment into the performance lab. The easiest to use solution on the market that quickly provides accurate, live network behavior now includes Advanced Remote Recording. This easy to configure and deploy capability enables users to record network behavior from any remote endpoint back to the data center or any other location, and automatically communicate the behavior recording back to the Network Catcher Server. This new Web browser-based feature also supports recording of network behavior from endpoints behind Firewalls/Network Address Translation (NAT) devices, Wireless Access Points (WAP) and mobile 2G/3G networks. Shunra Software (http://www.shunra.com) is the market leader in WAN emulation solutions for application performance testing throughout the entire application development lifecycle. Shunra's award-winning solutions enable development, quality assurance, pre-deployment and operations teams to create an exact replica of their production environment or design what-if network scenarios; allowing them to predict exactly how applications or infrastructure changes will perform in any networked environment--before rollout. Shunra's headquarters are in Philadelphia, Pennsylvania and the R&D center is in Kfar Saba Israel. (Shunra17.12)
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9.13 Elbit Systems to Perform Airborne Upgrade Projects in Europe Valued at $80 Million
Elbit Systems was recently awarded several airborne upgrade contracts at a total value of approximately $80 million. Signed with European customers, the projects will be performed over the course of the next three years. The contracts awarded, which call for the upgrade of both fixed-wing aircraft and helicopters, will encompass the installation of some of Elbit Systems' innovative systems, including: display systems, battle mission computers, command & control systems and advanced helmet systems. Electronic systems based on highly advanced technology, fully developed by Elbit Systems, have been integrated on a broad scale of veteran and new platforms, for both Israeli customers and for customers worldwide. The integration of modern systems on new and veteran aircraft enhance the pilot's survivability and operational capabilities, thus placing the upgraded aircraft inline with new aircraft standards, while saving costs. Haifa's Elbit Systems (http://www.elbitsystems.com) is an international defense electronics company engaged in a wide range of defense-related programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance ("C4ISR"), unmanned air vehicle (UAV) systems, advanced electro-optics, electro-optic space systems, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and radios. (Elbit Systems 17.12)
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10: ISRAEL ECONOMIC STATISTICS
10.1 Israel's November CPI Drops On Falling Energy Prices
Israel's Consumer Price Index (CPI) fell by 0.6% in November 2008, the Central Bureau of Statistics announced on 15 December. Most of the drop was caused by a 9.3% fall in prices for energy (fuel, heating oil, and electricity), an 8.1% drop in prices for fresh vegetables and a 2.8% drop in car prices - the three with the greatest weight in CPI, except for housing services, which rose by 2.5%. Inflation for the last 12 months fell to 4.5% from 5.5%. Prices for fresh fruit, poultry, and foreign travel also fell. However, prices for apparel and cosmetics all rose. Capital market sources had predicted that the November CPI would fall by up to 0.9%. The sources believe that the deflation that began last month will continue in December, with the CPI expected to fall by 0.5%, as the economic slowdown worsens under the impact of the recession in developed countries and rising domestic unemployment. The sources predict that the CPI will also fall in January 2009. (Globes 15.12)
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10.2 Israel's State of the Economy Index Posts Sharp Drop
The composite State of the Economy Index reported by the Bank of Israel showed a drop of 0.4% in November. The drop is as large as the one in February 2003. The drop in the index over recent months points to the economy's continued slowdown, which began at the end of the second quarter. The index reflected a drop in the trade and services revenue index, as well as a rise in the index of manufacturing production, the goods and services exports indices, and the goods imports index. The goods exports index rose 4.6% in November, after drop of 5.6% in October. The trade and services revenue index fell 2.1% in October, after a rise of 1.4% in September. The composite index accounts for changes in some of its components (seasonally adjusted) in both the current month and previous months with a lag. (BoI18.12)
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10.3 Israel's Trade Deficit Reaches $1.2 Billion Per Month
The Central Bureau of Statistics announced on 11 December that Israel's trade deficit averaged $1.2b a month in January-November 2008, amounting to an annualized total of $14b. The trade deficit is 37% higher than the $10.7b trade deficit in 2007. Import of goods totaled $4.7b in November, export of goods totaled $3.8b, and the trade deficit totaled $900m. Central Bureau of Statistics showed that Israeli exports are falling significantly. Exports of goods, excluding diamonds fell by an annualized 9.5% in trend figures for September-November, after remaining unchanged in June-August. High-tech exports, 42% of total exports of goods excluding diamonds, fell by an annualized 7.4% in September-November, after falling by 5.4% in June-August.
However, mixed high-tech exports, 32% of total exports of goods, rose by an annualized 4.9% in September-November, after rising by an annualized 25.3% in June-August. Mixed-low technology exports, 20% of total exports of goods, fell by an annualized 37.5% in September-November. Low technology exports, 6% of total exports of goods, rose by an annualized 14.9% in September-November, after rising by an annualized 19.6% in June-August. Polished and rough diamonds exports in January-November 2008 totaled $9.4b in January-November, 4.8% less than in the corresponding period of 2007. Agricultural exports totaled $1.1b in January-November, 5.3% less than in the corresponding period. (CBS11.12)
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10.4 Israel's Unemployment Rate Unchanged For Fifth Month
The Central Bureau of Statistics announced on 17 December that Israel's unemployment rate was 6% of the civilian labor force in October 2008. The unemployment rate has not changed since May. The steady fall in the unemployment rate over the past several years, leveled off at 6% in mid-2008. The unemployment fell from 9.4% in January 2005 to 9% at the beginning of 2006, 7.9% at the beginning of 2007 and 6.4% in January this year. The wave of layoffs that began in November will begin showing in the labor force data in the coming months. (CBS17.12)
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10.5 Tourism in Israel Hits Record High for 2008
Although most industries experienced an economic slowdown in 2008, the tourism industry in Israel had a record year, according to the Tourism Ministry. As of November, 2.8 million tourists had arrived in Israel, 35% more than in 2007. As a result, the Tourism Ministry called on job seekers to join the tourism industry. Tourism Minister Rumaha Avraham-Balila said, “2008 will be Israel's all-time record year for tourism. This success is of fundamental importance, as income from tourism registered significant increases this year, reaching NIS 25 billion.” She added that “thousands of new employees began working in the tourism industry.” According to the Tourism Ministry there are currently 4,000 tourism job vacancies, many in the hotel industry. In addition, a statement by the ministry said it is embarking on ambitious training programs and offering courses in tourism sales and marketing in the north, as well as courses for vacation cottage owners in the Druze community. The Tourism Ministry is also offering service workshops for taxi drivers in Eilat and tour guide courses for Russian and Chinese speakers. (IsraelNN17.12)
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11: In Depth
11.1 Israel: Concluding Statement of the IMF Mission
1. Israel was well situated when the global financial turmoil began in the fall of 2007. Fiscal and monetary credentials were established in markets; banks and their supervisory arrangement were robust; and growth was strong, sustained and balanced-with unemployment falling towards historical lows, a large current account surplus and stable domestic real estate markets.
2. That set the stage for a relatively strong performance into the third quarter of 2008. As conditions deteriorated abroad, economic growth continued, buoyed by exports and consumption, unemployment fell further, and budget discipline was firmly maintained. Headline inflation and inflation expectations rose above target, but prices excluding food and fuels remained subdued. Although domestic securities prices tracked those abroad downwards, prompting outflows from provident funds, flows in domestic credit markets remained largely undisturbed. In this context, capital inflows and the Shekel strengthened.
3. Since then, challenges facing policymakers have deepened profoundly due to the intensification of global financial strains in the fall of 2008. As global demand, prospects, and securities markets slumped, Israeli exports and consumption slowed, economic growth and tax collections weakened alongside, and the flows in the corporate bond market dried up, with banks proving unwilling to fill the gap so far. Declines in commodities prices, inflationary pressures, policy interest rates and the Shekel provided some respite. But the outlook has deteriorated sharply. And with elections due in February, the 2009 budget will not be adopted until well into the new year.
4. In this context, external vulnerabilities remained contained. External assets exceed external debt including in the short-term, foreign exchange reserves are some 90% of short-term debt, and the current account continued in surplus. But with total external gross debt at around 50% of GDP and public debt close to 80% of GDP, some vulnerabilities remain.
5. Looking ahead, there is little sign that global difficulties will ease soon. Recessions in the US and Euro areas are anticipated through the first half of 2009, but their length and depth is highly uncertain as a small open economy which has prospered by integrating into the world, Israel is exposed-to slowdown in its key export markets, to the associated strains on its financial sector as domestic activity weakens, and to direct contagion from further financial disruptions abroad-with weak commodity prices providing at most a modest offset.
6. Thus, Israel faces a period of economic weakness with marked downside risks. With investment and exports weak, our central scenario anticipates a decline in economic growth to 1% in 2009, with average inflation around 2%, all assuming implementation of policies recommended below. A modest recovery is projected for 2010. However, financial sector vulnerabilities abroad imply that risks are firmly to the downside, notwithstanding strong profiles for external amortization and short term external debt.
7. Despite the predominantly global sources of the downturn and risks, domestic policy can help if it is well coordinated across three spheres-financial stability, budgetary, and monetary. Within each sphere, steps to strengthen long-run credibility will increase scope for flexibility to address immediate exigencies. Specific initiatives should each have narrowly defined goals-maintaining a close correspondence between instruments and objectives-to ensure effectiveness and accountability.
8. In summary, we recommend, in the central scenario context, key steps to support credit flows and stability, a flexible near term budget stance backed by enhanced commitments to public debt reduction in the medium-term, and further monetary relaxation. These recommendations are subject to review should significant downside risks materialize.
9. Progress in this direction has already begun. Following the appropriately sizeable recent reductions in Bank of Israel (BoI) interest rates, policymakers' attention has rightly turned to the nexus of concerns regarding credit flows and financial stability.
10. In particular, the proposed public-private fund to purchase corporate bonds is welcome. It should be established promptly and tasked primarily to support new credit flows for large solvent firms. Thus, the fund should purchase new bond issues and refinance payments falling due for firms, at yields below those in the market now but well above those prevailing before the fall of 2007. These arrangements, and mechanisms to address conflict of interest issues for trustees, need to be reflected in the terms of reference for the fund.
11. In this light, purchases by the fund on the secondary market would generally be avoided. These will not provide new credit to firms, and they risk implicitly transferring accrued institutional investor or corporate losses to the budget. While plans should be prepared to address priorities in the corporate bond market other than credit flows, the tasks for this fund should not be extended lest its effectiveness and accountability is diluted. Given the terms of reference outlined here, the anticipated size of the fund-in the range of NIS 10-20b-is sufficient at least through 2009.
12. Alongside, the initiative to streamline procedures to reorganize corporate bonds is welcome. Any bureaucratic impediments to efficient and rapid disbursement of the NIS 230m fund to support credit for small and medium size firms need to be removed.
13. Given these steps to support credit flows, other financial sector initiatives should focus on further strengthening bulwarks against extreme strains on banks. This includes the proposed guarantee of NIS 6b for bond issues by banks, which is an appropriately pre-emptive step to increase bank capital. Restrictions on dividend payments by participating banks would maximize its effect.
14. In addition, the technical review of legal provisions concerning troubled banks is welcome. Despite supervisory powers to replace managers and the implicit public guarantee on deposits, strengthened provision for preemptive bank resolution by regulators may be needed, notably via restriction of legal recourse for affected stakeholders to financial compensation only. The mandated transparency of lender-of-last-resort actions for publicly traded companies should also be reviewed.
15. Against the backdrop of continuing initiatives to buttress supervision of all financial firms during 2008-enhancing capital, reporting, monitoring, transparency, and regulatory coordination-additional steps as suggested above could help maintain orderly financial market conditions under conditions of duress.
16. While consideration of the merits of current financial regulatory organizational structures should continue, present arrangements would best remain as they are, for the time being, given the immediate challenges facing regulators. But suitable alternatives will ensure that information flows between banks and the BoI remain full, even under stressed circumstances.
17. The package of initiatives outlined above constitutes a first step. If downside risks materialize, abroad or domestically, more may be needed. In this regard, developments in bank share prices and non-guaranteed bond yields may be monitored for signs of heightened stability concerns, and credit flows can be observed directly.
18. On the budget side, there is a clear case to allow automatic stabilizers to operate fully. Successful sustained tight budget control by the Ministry of Finance, and the associated reduction in public debt ratios to below 80% of GDP, has secured a considerable degree of fiscal credibility. Now is an appropriate time to deploy this credibility to cushion the domestic economy from some of the effects of the weak external environment.
19. But the likely moderate extent of the economic slowdown in 2009 and the still high debt ratio counsels against going much further than that. Moreover, budgeting for 2009-10 should reflect cautious assessments of the portion of revenue declines that reflects automatic stabilizers. Tax collections in recent years likely reflected the excesses in financial markets that preceded the current global crisis-via wealth effects on spending, taxes on returns on foreign assets, and large profits in domestic non-banks. To this extent, aggregate tax collection ratios will not return to levels seen in recent years, even once global economic conditions normalize.
20. Accordingly, the structural fiscal balance in 2009 should be unchanged from 2008, excluding the financial sector support initiatives described above and any already-committed investment and infrastructure projects which are brought forward. This stance leaves essential "fiscal firepower" in reserve should downside risks materialize, and it underscores commitment to fiscal sustainability. All these desiderata are implicit in the deficit outturns likely to emerge from implementation of the draft 2009 budget, which we therefore endorse.
21. However, the draft 2009 budget and the policy initiatives described above are likely to deliver a headline budget deficit for consolidated general government in excess of 4% of GDP. Outturns of this order of magnitude could persist in 2010, even in the central case scenarios. These are large numbers. They will push public debt ratios up markedly again. Though this may well turn out to be in line with developments elsewhere, the possible extent, pace, and duration of the deterioration underscores need to reinforce confidence in long run fiscal sustainability now. If that confidence falters, far from cushioning external blows, the fiscal actions proposed could aggravate broader economic difficulties. Adjustments to the framework of fiscal rules will help to address these concerns.
22. The one-year ceiling on the deficit of 1% of GDP needs to adjust to allow the operation of automatic stabilizers in 2009. Building on recent proposals from the Ministry of Finance, one alternative could be to replace it with a formal commitment to reduce public debt to well below 60% of GDP during the middle years of the next decade. This objective would establish a buffer against shocks, including geopolitical developments. It would need to be reflected in adoption of budget procedures which include publication with each budget of detailed medium-term fiscal projections and associated tax and spending policies. Each year, these would lay out how and when the ultimate debt objective would be realized.
23. This flexible framework would also allow an effective fiscal response in the event that significant output downside risks materialize immediately during 2009, which a monetary response cannot fully address. An immediate and full account to markets of how debt reduction would be secured in the medium-term would help to ensure that a weakening of the structural fiscal stance in 2009 can readily be financed. This would facilitate a significant budget adjustment should significant downside risks to output materialize.
24. And the other current fiscal rule-the annual cap of 1.7% on real spending growth-may also need to be amended. It permanently impedes efficient operation of fiscal stabilizers due to the accompanying "one-year lagged correction mechanism" for inflation surprises. It may be inconsistent with consensus medium-term spending aspirations. Instead, adoption of caps for three years ahead on annual nominal spending, excluding emergency outlays, has merit. This framework would be highly transparent, would improve the operation of fiscal stabilizers and would buttress monetary responses to inflation surprises. With appropriate parameters-reflecting the inflation target and trend growth-such nominal caps would support the credibility of the flexible debt target objective.
25. On the monetary side, the advantages of the inflation targeting and flexible exchange rate frameworks are now more evident than ever. Furthermore, the credit-supporting and financial stability initiatives outlined above will help to maintain the effectiveness of the domestic monetary transmission mechanism, while the suggested fiscal policy and framework steps reduce need for the BoI to weigh upside risks as it pursues the inflation target. Both will allow monetary policy to play its maximum role in addressing external weakness and uncertainties now.
26. Inflation is set to fall below the target range for much of 2009. This is indicated by break-even measures derived from government bond yields-even allowing for possible liquidity distortions to these-and reflects weak output, muted nominal wage growth, and cordial and flexible labor relations. In the context of other policies as outlined above, scope therefore remains for further significant reductions in policy rates. Concerns not to surprise markets with large steps may be attenuated with prior guidance and by the increased market familiarity with large steps globally.
27. Increased international reserves have attenuated external vulnerabilities. They now approach 90% of short-term external debt. The purchase modalities appropriately avoid discretionary intervention, thereby respecting the primacy of the BoI interest rate in the inflation targeting framework. In that context, the fact of, timing, and specification of a target range for total reserve accumulation provides an appropriate broad signal to markets about the authorities' views on competitiveness.
28. Preparations for a new BoI law are welcome. In particular, provision in the draft law for establishment of a monetary policy committee of well qualified experts to determine the policy rate is appropriate. Additional provisions for BoI capital, staff remuneration, and legal protection for staff acting in good faith could also be included to ensure the BoI's soundness, independence, and operational effectiveness over the long term.
29. Even with policies thus calibrated to address the coming slowdown and downside risks, prospects are challenging given international conditions. But the economy has already made many of the necessary adjustments-to intercompany credit flows, export margins, and nominal wages-and policymakers have responded promptly, political constraints notwithstanding. While much has been done, planning for contingencies needs to proceed further and urgently. If policy credibility, effective coordination, and clarity of objectives remain the standard which further initiatives have to meet, Israel will pass through this turbulence successfully. (IMF15.12)
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11.2 LEBANON: Moody's Outlook Change To Positive Reflects Lebanon's Proven Resilience To Shocks
On 11 December, Moody's Investors Service (http://www.moodys.com) changed the outlook on Lebanon's sovereign ratings to positive from stable. These ratings are the country's B3 local and foreign currency government bond ratings, the B3 country ceiling for foreign currency bank deposits, and the B2 country ceiling for foreign currency bonds.
"The change in outlook was motivated by the proven resilience of the public finances to shocks, which have been severe in recent years. The improvement in Lebanon's political and economic environments since the signature of the Doha Agreement in May are also reassuring," explains Tristan Cooper, a Vice President-Senior Analyst in Moody's Sovereigns Group. Under the Doha Agreement, Lebanon's hostile political factions agreed to: (i) elect a new president; (ii) form a national unity government; and (iii) pass a new electoral law in advance of the 2009 parliamentary elections.
All three actions have been achieved: a consensus president was appointed in late May (the presidency had been vacant since November 2007); a new government that includes Hezbollah and representatives of other opposition parties was formed in July; and a revised electoral law was approved by parliament in September. These actions appear to have assuaged Lebanon's volatile political environment, which was nearing civil war in May.
"Moody's recognizes that Lebanon's calmer political environment has allowed the country's economy to regain momentum but also notes that the public finances would likely be durable should the improvement falter, as shown during previous episodes of political turmoil," says Mr. Cooper. This summer was Lebanon's best in terms of tourism inflows since 2004. The IMF is projecting that the Lebanese economy will grow by 6% this year and the country's very large public debt overhang has continued to ease.
Furthermore, Moody's notes that Lebanon is one of the few countries to have so far benefited from the global financial turmoil, as members of the large Lebanese Diaspora have moved funds into Lebanon's banks, viewing them as relatively safe havens. Due to strict regulation, Lebanese banks have not been exposed to toxic sub-prime assets and did not hold significant assets with failed Western banks. Thus, largely due to these deposit inflows, the central bank's foreign currency reserves jumped by 57% over the first nine months of this year. At end-September, they amounted to $15.3b or 60% of 2007 GDP. Lebanon's commercial banks also retain a high level of foreign currency liquidity. Moody's notes the banking system therefore remains willing and able to roll over and buy new government paper in both local and foreign currency.
Despite these improvements, Moody's points out that Lebanon still has substantial credit risks. The political situation is fragile and tensions could well resurface before the parliamentary elections next May. There is also the looming threat of renewed conflict between Israel and Hezbollah. A return to serious political turmoil would quickly set back the economy and could lead to a withdrawal of bank deposits, although these have been highly resistant to political shocks in the past, as have the government's poor finances. Lebanon's economy is also likely to be negatively affected by the global economic downturn, as external demand falls and remittances and inward investment potentially suffer. The level of remittances from Lebanese workers in the Gulf are already reported to be falling. Nevertheless, Moody's believes that these downside risks are already well captured by Lebanon's low ratings.
Moody's would upgrade Lebanon's sovereign ratings if the current relative political calm can be sustained through the electoral cycle, some much-needed economic reforms are passed and the public debt burden continues to ease. Lebanon has a GDP per capita in purchasing power terms of around $12,000, mid-range among countries rated by Moody's, although the absolute size of the economy is relatively small.
The last rating action took place on 25 March 2008 when Moody's changed the outlook on Lebanon's ratings to stable from negative owing to the resilience of Lebanon's public finances in the face of numerous political shocks. The principal methodology that Moody's uses in rating the Government of Lebanon is its Sovereign Bond Methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody's website. Any impact on other issuers resulting from today's rating action will be announced separately. (Moody's 11.12)
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11.3 IRAQ: IMF Executive Board Completes Second Review of Stand-By Arrangement
The Executive Board of the International Monetary Fund (IMF) completed the second review of Iraq's economic performance under the Stand-By Arrangement (SBA), which is designed to support the country's economic program through March 2009. The Board also completed a financing assurances review under the SBA.
The approximately $729.3 million arrangement was approved in December 2007. It is being treated as precautionary by the authorities and no disbursements are planned.
Following the Executive Board's discussion of Iraq's economic performance, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:
"Economic developments in Iraq have been encouraging in 2008 and the authorities have kept their economic program on track. With the improvements in the security and political situation, economic activity has picked up as oil production and exports have increased and non-oil activity has started to recover, while inflation has remained subdued. The recent sharp drop in world oil prices, however, has worsened Iraq's external and fiscal outlook for the period ahead. Iraq's continued efforts to rebuild its infrastructure and institutions and to achieve higher economic growth depend critically on continued improvements in the security situation, prioritization in the use of lower oil revenues, and the implementation of key structural reforms.
"The draft 2009 budget is based on much lower oil revenue projections than realized in 2008 and contains current spending, including by streamlining the in-kind Public Distribution System, while allowing for increases in investment and security spending. In this connection, it is important to ensure the quality of public investment. In response to the further decline in world oil prices since the submission of the draft budget to parliament, the government has begun preparing additional measures to reduce non-priority spending in 2009, in order to preserve fiscal sustainability. The Central Bank of Iraq (CBI) will continue to keep its policy interest rate positive in real terms and to manage the exchange rate with a view to keeping inflation under control.
"With lower world oil prices, the indirect subsidies on fuel products are expected to decline in 2009. To establish a transparent framework for future fuel price adjustments, the authorities are developing a periodic adjustment mechanism for domestic fuel prices with assistance from the Fund.
"It is important to step up the pace of structural reforms. The recently adopted action plan to modernize public financial management provides a good basis to make significant progress in this area. The census of public service employees needs to be completed urgently, in order to clean-up and computerize the payroll. In the financial sector, it is crucial to adopt restructuring programs for Rafidain and Rasheed banks based on their financial and operational audits, and to complete the set of prudential regulations for commercial banks. It is also important for the CBI to continue implementing the recommendations of the IMF Safeguards Assessment Report to further improve its accounting and reporting framework.
"Further efforts are required to strengthen governance and fight corruption, in particular in the hydrocarbon sector. While progress has been made recently in oil metering, the metering systems should be extended to all oil sector activities, and the implementation procedures under the Extractive Industries Transparency Initiative should be stepped up. A new legislative framework for the hydrocarbon sector needs to be put in place to facilitate investments in the sector.
"The authorities' efforts to conclude debt agreements with Iraq's official and private creditors are commendable. However, further progress is needed to resolve the outstanding claims of official non-Paris Club creditors on terms comparable to those of the 2004 Paris Club Agreement," Mr. Kato stated. (IMF17.12)
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11.4 KUWAIT: 2008 Year in Review
Having enjoyed the benefits of high energy prices and strong cash flows in the first half of the year, the Kuwaiti economy suffered leaner and less stable times in the second part of 2008, in line with global trends following the financial crisis. The Oxford Business Group continued, stating that as the year drew to a close, there were signs that while fundamentally sound, growth in the country's economy could slow in 2009.
The year opened well for Kuwait, with the economy primed for strong growth. In January, the government released details of its draft budget for the 2008-09 financial year, which began in April. Based on a (then) conservative estimate of oil prices of $50 per barrel, the budget foresaw revenue of $46.4bn, 52.8% higher than the previous fiscal year. Expenditure was projected at $65.2bn, up 57.5%, with much of the increased spending to be directed toward projects to improve infrastructure and social services.
Thanks to the strong performance of oil prices for most of the year, the government was able to announce on December 3 a budget surplus of $29.39bn for the first seven months of the fiscal year. However, the National Bank of Kuwait warned that the surplus could fall to approximately $6.5bn by the end of the financial year on March 31, taking into account an extraordinary transfer of about $20bn directed to the Public Institution for Social Security to support state services as a result of falling energy earnings.
Though Kuwait recorded a solid budgetary surplus, calls upon state funding are increasing. On December 13, the Ministry of Commerce and Industry announced it had spent approximately $168m on subsidies in the six months ending September 30, the first half of the Kuwaiti financial year. Out of this amount, $113.4m had gone to provide price support for food and a further $36m on subsidizing construction materials. By comparison, Kuwait expended just $88m in subsidies in the previous financial year.
Early in the year, Kuwait unveiled finalized plans for what is expected to be one of the largest single real estate developments in the Middle East -Silk City. The project, which has a tentative budget of $77bn, is intended to serve not only as home to as many as 700,000 when completed by 2030, but also as a major free trade zone linking central Asia with Europe, and rivaling Dubai as the region's leading business centre.
Preliminary work has already begun on the project, which will cover an area of more than 200 sq kilometers in the Subbiya district close to the Iraqi border. The City of Silk will actually be four cities rolled into one, with dedicated hubs for commerce, leisure and recreation, ecology, and diplomacy and education.
After six months of steady gains, the Kuwait Stock Exchange (KSE) hit a record 15,654 points in June. However, this was something of a high tide mark, as by mid-December the KSE index had fallen to 8910 points, following the spread of the global financial crisis.
Politically, Kuwait ended the year on a discordant note. On December 13, Kuwaiti Emir Sheikh Sabah Al Ahmed Al Jaber Al Sabah accepted the resignation of Prime Minister Sheikh Nasser Mohammad Al Ahmed Al Sabah and his cabinet after they came under pressure in the National Assembly, in part over the cabinet's performance in handling the economy.
In particular, the government was criticized for approving a deal between the state-owned Petrochemicals Industries Company (PIC), a subsidiary of Kuwait Petroleum Corporation, and US petrochemicals giant Dow Chemical, the two of which signed a renegotiated deal on November to set up a joint venture called K-Dow. The agreement requires PIC to pay $7.5bn for a 50% stake in the new firm, with Dow Chemical's contribution taking the form of assets in a number of plants worldwide.
A number of parliamentary deputies criticized the agreement, which was originally valued at $9bn, saying Kuwait should have demanded a better deal, as Dow Chemicals has seen a sharp drop in the value of its assets following the global economic downturn. Some deputies claimed not enough had been done to ensure Kuwait's interests were protected.
More positive was a report issued by Global Investment House (GIH) in mid-December, which predicted Kuwait will finish the year with an inflation rate of 11.3%, down from the 11.64% recorded in August. Furthermore, the report said inflation should fall in 2009 on the back of lower rents and stabilizing import costs, partly due to the rising strength of the US dollar.
Though Kuwait decoupled its currency link with the dollar in May 2007, it still pays for much of its imports with dollars. With the greenback increasing value in the last months of 2008, this has eased the pressure from imported inflation, with the effects expected to be seen in the new year.
The effects of the credit crisis began to flow into Kuwait's real estate sector in the second half of the year, with property sales falling 56% in October compared to the same month in 2007, having already dropped by an average of 43% in the preceding two months.
But while the international credit crisis affected real estate sales, there was another factor at play, at least in the residential property segment of the market. In early 2008, legislation came into force preventing investment companies from trading in residential properties. This - combined with tighter loan requirements set by the Central Bank of Kuwait that limited the levels of funds banks could loan out for real estate transactions as a proportion of their overall portfolios - took some of the heat out of the residential market.
Additionally, in March the central bank implemented new regulations that limited monthly interest and repayment installments for private borrowers seeking a new loan to the equivalent of 40% or less of their salaries, compared to the previous ceiling of 50%.
In order to boost confidence in the banking system - following the news in late October that one of the country's leading lenders, Gulf Bank, had taken heavy losses on euro derivatives deals - parliament approved legislation providing a state guarantee on all bank deposits, estimated to be $87bn.
This measure - combined with moves by the central bank that included decreasing the required loan-to-deposit ratio from 80% to 85% and lowering interest rates - allowed for more liquidity to be pumped into the market.
In mid-November, the state also announced the establishment of a new investment portfolio to support local companies in financial difficulties, using funds from the Kuwait Investment Authority. According to local media reports, up to $12bn will be made available to acquire stakes in firms caught short by the crisis, with the plan calling for the assets to be sold back at the end of an agreed period.
Further evidence that the financial crisis was starting to bite came in late November, when the government announced it was reviewing its $128bn development program. The review could see a scaling back or postponing of some major projects, including the construction of new residential and business hubs, port facilities and rail links.
Despite the spreading effects of the global financial crisis, Kuwait's overall economic health is sound. The state has moved to shore up the finance sector, boost liquidity in the market and expand regulatory control over the property market to prevent the developing of an unsustainable loans environment. Moreover, with high levels of state funding as well as substantial oil reserves, Kuwait has the depth of funds needed to ride out any economic storm. (OBG19.12)
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11.5 BAHRAIN: 2008 Year in Review
Unlike many of its neighbors, Bahrain approached the end of 2008 in much the same way it entered 2007 - with a sound economy, inflation well contained and with its reputation for careful and steady financial management untarnished. The Oxford Business Group added that the measured performance of Bahrain's financial sector throughout the year bears out a prediction made in February by Rasheed Mohammed Al Maraj, governor of the Central Bank of Bahrain (CBB), who said the Kingdom would avoid the worst of the looming global economic crisis due to the strong presence of Sharia-compliant financial institutions in the Bahraini banking sector.
Discussing the sub-crime crisis that was then just the beginning of the global economic downturn, Al Maraj said the fact that Bahrain's Islamic banks had avoided collateral-linked debt instruments would help to insulate the domestic financial market. This upbeat prediction was supported by the banking sector's strong performance in the first half of the year. As of the end of June, the industry's consolidated balance sheet totaled $269.5bn, an increase of $17bn on the March figure, according to a CBB report.
While the global credit squeeze has resulted in a tightening of liquidity, this appears to have had less of an impact on Bahrain's banks than on some others in the Gulf. Though some banks reported losses for the third quarter, the CBB said the country's financial system remained sound, and there were no plans to implement exceptional measures to support any bank. In September, the CBB issued a statement saying it had conducted a thorough review of the country's banking sector and found that the kingdom's lenders were insulated enough to withstand potential fallouts of the crisis, which is sending tremors through most global financial markets.
Credit ratings agency Standard & Poor's (S&P) also judged Bahrain's economy to be in good health. The agency announced in mid-November it was maintaining its 'A' long-term and 'A-1' short-term sovereign credit ratings for the Kingdom, while affirming that the country's outlook was stable. Bahrain's well developed and closely regulated financial system mitigates the vulnerability of the country's economy to shifts in the real estate and stock markets, the agency said in its report.
However, it hasn't been all smooth sailing for Bahrain's banks. In early February, the Arab Banking Corporation (ABC), which includes both conventional and Islamic banking arms, announced it had been forced to set aside $230m to cover write-downs linked to the US sub-prime crisis.
Another Bahrain bank to experience difficulties, though of a different kind, was Future Bank. On March 13, US authorities announced they were enacting sanctions against the bank for having Iran's Bank Melli and Bank Saderat as two of its major shareholders. The US accused both Iranian lenders of supporting terrorism. Future Bank officials denied any direct or indirect links with terrorists, and said the move was a result of the political situation between Washington and Tehran.
Like other segments of the Kingdom's economy, the Bahrain Stock Exchange (BSE) has also had a softer ride than others in the region this year. Having opened 2008 at around 2750 points, the BSE's main index topped 2900 points in June, before beginning a slow retreat to 1918 points in mid-December.
During 2008, Bahrain also stepped up efforts to bolster the country's infrastructure, launching an upgrade of the existing port of Mina Salman, putting the finishing touches on the new $137m Sheikh Khalifa bin Salman Port, due to open in March 2009, and expanding the Bahrain International Airport to increase its cargo handling capacity to 1m tonnes annually.
According to central bank figures, inflation stood at 4.4% in October, just over a third the rate of other Gulf states such as Qatar, where inflation is over 15%. Though up on the 3.2% recorded in September, the situation is expected to improve in the new year given falling commodity prices and the strengthened US dollar, to which the Bahraini dinar is pegged.
Bahrain is also fortunate in being less susceptible to fluctuating energy prices. Though the Kingdom was the first producer and exporter of oil in the Gulf, its reserves have been depleted to the point that production is barely enough to meet domestic needs. But while oil is no longer the backbone of the economy, it still plays a major role. Production and refining activities contribute around 25% of Gross Domestic Product (GDP), although this is less than the 27% generated by the country's financial services sector, which is also Bahrain's main employer.
While its contribution to GDP is expected to fall in the coming years as the Bahraini economy expands and diversifies further, the government is investing heavily to make the most of what resources remains. There are plans both to extend the life of existing fields and develop new oil sources. Leading international oil firms ExxonMobil, Occidental and Maersk were short listed in September from among eight candidates to carry out an expansion project at Bahrain's main onshore field of Awali, a scheme that could see as much as $5bn invested and result in a doubling of the current output of 33,000 barrels per day (bpd).
Bahrain is also looking into boosting imports from Saudi Arabia in order to supply the Sitra refinery. The plant is scheduled to undergo a major upgrade to increase capacity from 260,000 bpd to 360,000. Both the increased imports and refining capacity are part of the government's long-term program to develop Bahrain as a centre for petrochemical processing, rather than a production hub. Having opened up its economy to foreign investment, recognized the advantages of a well-regulated international banking industry and diversified its economy away from a reliance on oil, Bahrain is probably better placed than many of its neighbors to look to the new year with confidence. (OBG19.12)
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11.6 BAHRAIN: Fitch Affirms Long-term FCIDR at 'A'; Outlook Stable
On 22 December, Fitch Ratings (http://www.fitchratings.com) affirmed the Kingdom of Bahrain's Long-term foreign currency Issuer Default Rating (IDR) at 'A' and Long-term local currency IDR at 'A+', both with Stable Outlooks. The Country Ceiling is also affirmed at 'A+'. The Short-term foreign currency IDR is affirmed at 'F1'.
Bahrain has benefited from high oil prices and a buoyant regional economy, growing by an average of 7% over the past five years, and recording fiscal and current account surpluses. It enters a more challenging period less indebted than the 'A' median. Consolidated general government debt is estimated at 16% of GDP in 2008, and net general government debt (taking into account government deposits in domestic banks) is estimated at around 3% of GDP.
However, Bahrain's economy is less diversified than many 'A'-rated sovereigns, belying its relatively high income per capita, and its public finances are exposed to the oil price. "The external environment has become much more challenging. Bahrain faces two external shocks - a steep fall in oil prices, and a slowdown in activity in the wholesale banking sector," said Charles Seville, Associate Director in Fitch's Middle East and Africa Sovereign team.
The main impact of falling oil prices will be on the public finances. Lower oil revenue will push the budget into deficit in 2009, from an estimated surplus of 5% of GDP in 2008. A draft 2009-2010 budget, under discussion by lawmakers, included large cuts in investment spending to keep the deficit to around 2% of GDP, based on an oil price assumption of $60/barrel. If the oil price turns out lower, Fitch expects the authorities to prove willing to adjust, as demonstrated in the past.
Bahrain is one of the main financial centers in the GCC, and a hub for Islamic finance. After a period of rapid expansion, the balance sheets of wholesale banks (formerly known as offshore banks) have contracted in Q3/08. Weaker financial sector activity will have a knock-on effect on economic growth. Fitch forecasts that overall economic growth in 2009 will halve from the 6% expected in 2008.
The risks to sovereign creditworthiness from wholesale banks remain low. In case of difficulty, Fitch would expect these to be supported by foreign shareholders; the Central Bank of Bahrain is not obliged to support them. Past rapid growth in domestic lending by the retail banking sector, which has begun to level off, could lead to higher rates of non-performing loans in the future. Around one quarter of the loan book is related to real estate. However, the domestic banking system had a capital adequacy ratio of 15.5% of risk-weighted assets in September 2008, with a Banking System Indicator of 'B' (based on the average Individual ratings of Fitch-rated retail banks), signaling a solid banking system leading to no major concerns.
The retail banking sector has not required support over and above enhanced liquidity provision from the Central Bank of Bahrain designed to address short-term liquidity needs. Geopolitical risks remain a constraint on the ratings. Tensions between the US and Iran are a concern for local and regional politics, but Bahrain's firm alliances with Saudi Arabia and the US mitigate risks. (Fitch23.12)
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11.7 QATAR: 2008 Year in Review
Though many of the world's economies moved into recession in 2008, Qatar utilized its high energy income and massive fiscal reserves throughout the year to maintain growth and economic stability, while at the same time investing for future expansion. As reported by the Oxford Business Group, in August, Qatari National Bank (QNB) estimated that the country's Gross Domestic Product (GDP) would rise by 19.5% this year and by 16% in 2009. Though well down on the 30% seen in the years 2004 to 2006, the figure is nevertheless enviable.
Much of this growth will be driven by Qatar's booming energy sector. With proven reserves of at least 32trn cubic meters and having spent heavily in processing and shipping infrastructure, Qatar is now the largest exporter of liquefied natural gas (LNG) in the world. In early April, Mohammed bin Saleh Al Sada, Qatar's minister of state for energy and industrial affairs, announced an ambitious program to reinforce Qatar's LNG dominance. Under the scheme, gas output would be increased from the current 31m tonnes to 77m tonnes by 2010, while oil production capacity would rise to more than 1m barrels per day from the present level of 850,000.
To meet this target, Qatar is bringing new gas fields on line and raising production at existing fields, along with increasing storage capacity and building a new prefabricated loading berth at the port of Ras Laffan to speed up gas transfers. Not only is Qatar boosting production, it is also increasing its profile as a transporter of LNG, with producer Qatargas building up its fleet of tankers. Indeed, eight are already flying the company flag, while the Qatar Gas Transportation Company (QGTC) announced plans in the middle of the year to boast 56 tankers in its fleet by 2010, making it one of the largest LNG carriers in the world.
Having captured a large slice of the Asian market in recent years, the emirate is also looking to expand its client list. It has begun exports to Spain, and officials from Poland and Hungary are holding talks with Qatar about future imports. Additionally, both the UK and Italy have turned to Qatar as a source for gas, with the former planning to meet 20% of its gas needs through imports from the Gulf state and Italy around 10%. With long-term contracts locked in, and new markets opening up, Qatar's energy sector performed well during the year and will continue to be the foundation for the economy in the future.
Another sector to have survived the worst of the international credit crisis is Qatar's banking industry, which has been less affected than some in the region, with only minor exposure to toxic loan instruments. In mid-December, the Fitch ratings agency released its latest assessment of Gulf banks. While the agency downgraded the individual ratings of some banks in the region, it affirmed the Issuer Default Ratings (IDR), individual ratings and outlook predictions for all six Qatari banks reviewed.
Fitch's assessment was based in part on expectations that Qatar's sovereign wealth fund, the Qatar Investment Authority (QIA), would provide support to any banks in need. In October, authorities unveiled a scheme under which the QIA would buy up to 20% of listed banks' capital, part of a program to inject liquidity into the banking sector, stimulate growth and maintain confidence.
One issue that has consistently been a source of concern across the region is inflation. However, there are signs that Qatar's rate, the highest in the Gulf, has peaked and has begun to ease. At the end of March, inflation climbed to 14.75%, and hit a record high of 16.59% by June, driven in part by soaring commodities prices and the falling value of the US dollar, to which the Qatari riyal is pegged. But with the greenback regaining some of its former strength, and with shipping costs down and global commodity prices retreating, inflation fell to 15.81% in the third quarter, according to figures released by the Qatar Statistics Authority in early December.
Earlier in the year, there had been calls to cut the link with the US currency as the dollar plunged, pushing up the cost of imports. Now, with inflation falling and the dollar trading strongly, the Qatari government's determination to maintain the peg has been vindicated.
Like all of the exchanges in the region, the Doha Securities Market (DSM) experienced a year of ups and downs. Having closed 2007 at 9,580.45 points, the DSM's main index climbed to a record level of around 12,500 points by June before beginning a steady retreat, falling by 25.6% in October and 12.4% in November. By mid-December, the DSM had dropped back to 6,642.60. However, it is now showing signs of recovery.
During 2008, Qatar pushed ahead with efforts to boost the country's infrastructure. In late March, Qatar Electricity and Water Company (QEWC), the country's partly privatized utilities service provider, and Qatar Petroleum (QP) signed an agreement with French firm Suez Energy International and Mitsui of Japan to build and operate a new $3.8bn power and water production facility at the Ras Laffan Industrial City (RLIC). The new contract was signed only days after the official opening of a $900m water and electricity plant, also located at the RLIC. Also in March, Qatar General Electricity and Water Corporation awarded contracts worth $323m for the expansion of water supply networks and pipelines, while QEWC announced plans for a water desalination plant at Ras Abu Fontas. Through careful management of its fiscal and energy reserves, along with considered spending and investment to ensure growth, Qatar should ride out the worst of the global downturn and appears well placed to exploit the economic rebound when it kicks in. (OBG19.12)
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11.8 UAE: Abu Dhabi - 2008 Year in Review
The Oxford Business Group stated that 2008 was another impressive year for Abu Dhabi, as the emirate continued to make high profile global investments despite depressing economic statistics abroad. Additionally, diversification reforms focusing on the environment, capital markets, transport and tourism continued at a vigorous pace.
During the opening ceremony of the World Future Energy Summit at the beginning of the year, Sheikh Mohamed bin Zayed Al Nahyan, crown prince of Abu Dhabi, revealed that the emirate's government would invest $15bn of record oil receipts into a clutch of green energy endeavors, including the first phase of a project to develop the world's largest hydrogen power plan.
In keeping with the emirate's growing reputation as a home for environmentally friendly initiatives, construction began in February on Masdar City, marketed as the world's first zero-carbon, zero-waste city. Powered solely by sources of renewable energy, the 6 sq km city aims to house 50,000 residents and over 1,000 businesses focused on sustainability and alternative energy. The city is scheduled to be completed in 2013.
Meanwhile, the relatively young capital market in Abu Dhabi took bold steps to bolster its image both in the region and beyond. On March 18, the Abu Dhabi Securities Market (ADSM) announced it was forging a partnership with NYSE Euronext, the world's largest stock exchange firm, to develop its trading platform and products. The move was part of ADSM's vision to internationalize the market over the next few years, in keeping with Abu Dhabi's overall strategic goal of becoming a regional financial centre.
Long-term economic diversification continued to be an important goal for the capital city, and data released in 2008 proved efforts were, indeed, paying dividends. Non-oil exports reached a record $1bn in 2007, according to a report released in May from the Customs directorate at the Abu Dhabi Department of Finance (DoF). Re-exports, considered a key growth area for trade, reached a value of almost $655m.
Aviation has been another buoyant sector for economic development in 2008. Strong first half statistics from Abu Dhabi International Airport were a welcome shot in the arm for its ongoing expansion project, as some 4.3m passengers used the airport in the first six months of this year - a 38.6% increase year-on-year. The total number of aircraft movements increased 16.8% by the same measure, to 45,920 from 39,300. Meanwhile, the volume of cargo handled registered a growth of 15.8% in the first half of 2008, rising to 172,760 tonnes from 149,210 tonnes in the comparable period of 2007.
Additionally, given the important role Abu Dhabi plays in linking East and West, Etihad Airways' stellar performance helped solidify the emirate's fast growing tourism and aviation sector. The airline carried 2.8m passengers in the first six months of 2008, compared to just under 2m for the same period in 2007.
Meanwhile, the Abu Dhabi Tourism Authority (ADTA) set its sights on increasing the number of visitors to Abu Dhabi to 2.7m annually over the next five years. To accommodate the influx of tourists, the agency announced plans to increase room supply to some 26,000 hotel rooms by the end of 2012, compared to an estimated 10,000 in 2007.
Globally, the economic slowdown in the second half of 2008 affected Abu Dhabi via weakening international demand for its main export, oil. At the same time, while oil provided less revenue, more investment opportunities opened up in the West as struggling organizations sought out liquidity to shore up balance sheets.
One high profile investment was the purchase of the Manchester City Football Club by Abu Dhabi United Group for Development and Investment (ADUG), a special investment vehicle set up by prominent Emirati businessmen. The group bought the English premier league team in September for around $360m. This was followed in October by Mubadala Development Company, a government-owned investor, increasing its stake in US-based Advanced Micro Devices (AMD), the world's second largest maker of computer processors. Mubadala boosted its stake in AMD to 19.4%, at a cost of $314m for 58m shares, in addition to warrants for an additional 30m shares.
Finally, toward the close of the year, Sheikh Mansour bin Zayed Al Nahyan, Abu Dhabi's minister of presidential affairs as well as a member of the royal family, became the biggest shareholder in the UK's second-largest bank, Barclays, buying a 16.3% stake for £3.5bn ($4.8bn). (OBG11.12)
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11.9 UAE: Ras Al Khaimah - 2008 Year In Review
The Oxford Business Group observed that for Ras Al Khaimah (RAK), 2008 was another year of solid growth at home and abroad, in keeping with the emirate's plans to expand and diversify its economy, and in spite of some of the problems that have afflicted the region following the global financial crisis.
The RAK government was an early convert to the concept of economic diversity, though the strategy was somewhat forced upon the emirate due to its lack of energy resources. The emirate's oil fields are almost tapped out, with an estimated 400m barrels left - just 0.4% of the United Arab Emirates' (UAE) total reserves. Similarly, natural gas reserves amount to around 34m cubic meters - nowhere near enough to meet RAK's domestic demand.
Despite minimal identified reserves, efforts are under way to locate new fields. In late November, the government announced it had granted a 25-year concession to a subsidiary of RAK Petroleum to explore and develop an 850 sq km block along the emirate's coastal strip, with seismic testing to begin in the new year.
Though short on oil and gas, RAK makes up for this in part by having a wealth of mineral deposits. Large reserves of limestone and other natural resources feed the emirate's growing cement industry. Indeed, out of 13 cement producers currently operating in the UAE, five are based in RAK, with a sixth firm announcing plans in November to construct a $200m plant close to the RAK airport. Though the cement industry saw profits trimmed in 2008 due to price capping and competition from overseas producers, it remained a key sector in the emirate's economy.
In March, RAK's industrial base was broadened with the opening of a $50m steel production facility at Al Ghail, with a capacity to turn out 500,000 tonnes of reinforcement bars per year. Along with the emirate's cement plants and quarries, the steel factory is allowing RAK to cash in on the construction boom across the Gulf region. Though the global financial crisis has taken some of the heat out of the sector, RAK will remain a leading supplier to the building industry in the UAE and beyond.
While seeking to boost industrial capacity, the emirate has also set its sights on further developing its tourism sector. RAK Tourism, the state body in charge of supporting and promoting tourism, has laid out plans to attract 2.5m visitors to RAK annually by 2012. The emirate is to more than double the 1800 hotel rooms currently available, with 3700 rooms scheduled for 2012 and as many as 20 new five-star hotels set to open their doors over the next five years.
According to Khater Massaad, chief executive officer of the RAK Investment Authority (RAKIA), hotel development has significantly progressed as the emirate works to accommodate the rising numbers of domestic, regional and international tourists. "There is still so much room for expansion in this sector and we are looking forward to establishing partnerships with more world-renowned hotel brands in the future," Massaad told local media in July.
One segment of the tourism sector RAK is looking to enter is the meetings industry. In May, local property developer Rakeen unveiled the final plans for the $400m RAK Convention and Exhibition Centre. Expected to be completed in 2011, the complex will feature five exhibition halls, three hotels and a shopping mall complete with cinemas, food court and covered parking.
During 2008, RAK continued to expand its overseas assets portfolio. At the beginning of December, RAKIA paid $65m to Georgia to acquire the remaining 49% stake in the Black Sea port of Poti, having bought an initial 51% earlier in the year. The authority has plans to invest a further $200m to construct a new terminal at the port, increasing its cargo handling capacity to between 35 and 40m tonnes, up from the existing 8m tonnes.
Additionally, Sheikh Saud bin Saqr Al Qasimi, crown prince and deputy ruler of RAK, announced plans in October for the emirate to expand its investments in the Democratic Republic of Congo (DRC). RAK has already committed $910m to projects in the DRC, including a five-star hotel and convention centre, while in March it set aside $250m to develop copper and cobalt mines and smelters in the southern province of Katanga.
In February, RAKIA - along with the state's industrial arm, RAK Minerals and Metals Investments - signed a Memorandum of Understanding (MoU) with Indonesian officials to develop an integrated industrial and logistics hub at the port of Tanjung Api-Api in Sumatra. Along with developing the port itself, an industrial park is being planned with smelting and metals production plants, as well as agro-based business facilities.
RAK has also been working to position itself as an alternative to Dubai as a centre of commerce and industry. As of now, there are some 5000 firms registered in the RAK Free Trade Zone (FTZ), 1500 more than the year before. Companies operating out of the zone - which is comprised of separate parks focusing on technology, industry and business activities - are able to benefit from all of the services available in nearby Dubai, such as a high-grade transport network and infrastructure, but at a far lower cost.
However, one of the biggest obstacles to RAK's program of economic expansion and diversification is a shortage of electricity. The government is moving to solve the problem, announcing plans at the end of July to build four new power stations over the next three years, with a combined capacity of 740MW. Other sources of energy are also being investigated, with some private companies, especially those in the cement sector, converting their plants from gas to coal.
Though the emirate lacks the financial and energy resources of most of its neighbors, RAK continued on its course to establish itself as a business and industry centre in the Gulf in 2008. While the emirate is likely to be affected by the slowdown in the global and regional economy in the coming year, the government's steady pace of development means RAK has a strong foundation from which to work in the harder times expected in 2009. (OBG18.12)
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11.10 OMAN: 2008 Year in Review
Oman, like many of its neighbors, had a mixed year in 2008, as reported by the Oxford Business Group. Marked by strong economic growth and high oil prices during the first half of the year, the Sultanate is relatively well buffered against the global downturn, despite now falling oil and commodity prices and a weakened stock market.
Continuing its impressive performance from 2007, the Muscat Securities Market (MSM) staged a solid run into the first half of 2008. According to Ritesh Jesrani, head of research at Al Madina Financial & Investment Services, the strong surge came from a combination of factors, including a significant increase in investor participation, both local and foreign; improving company fundamentals; and a vibrant economy backed by high oil prices.
However, the fallout from the subprime meltdown and the subsequent unfolding of the credit crisis sent stocks on the MSM tumbling in mid-June. Despite the MSM index falling 50.73% to date from its all-time high of 12,109 on June 11, many argue that much of the decline has been sentiment-driven, and that the fundamentals of the Omani economy remain strong.
As signs of a global recession continue to mount, the debate has begun on how the international financial turmoil will impact Oman's business agenda. Beginning in October, the Central Bank of Oman (CBO) took pre-emptive measures to ward off a potential liquidity shortage. The loan-to-deposit ratio was originally planned to be tightened in November from 85% to 82.5% to contain the fast growth of credit in the banking system, but the change has been deferred until the restoration of normal conditions in the international market. As an additional buffer against liquidity constraints, commercial banks have access to approximately $2bn in CBO certificates of deposit and in Government Development Bonds, which they can sell back through repurchase agreements as they feel necessary.
In order to assist local banks in overcoming a shortage in US dollars (USD), on November 3, the CBO announced in coordination with the Finance Ministry that it would provide USD funds through either a foreign exchange or direct USD lending mechanism. These facilities will be available until the international markets return to normal conditions, or as deemed appropriate by the CBO.
The government has also made significant moves to bolster the market's future stability. On November 20, Maqbool bin Ali Sultan, Oman's minister of commerce and industry, announced the government would institute a $390m)fund to boost sagging equity prices on the MSM through investment in securities. The government said the fund would buy shares of listed companies whose prices are deemed "appropriate," and then sell them once prices rise in order to provide liquidity for market participants and gains to the fund.
Relative to many of its neighbors in the Gulf, Oman has experienced success in economic diversification, though as of 2007 oil still accounted for 26.6% of Gross Domestic Product (GDP). To meet its continuing goals, the government has stated it will focus in 2009 on sectors that have shown promise in attracting FDI and creating jobs - including tourism, IT, financial services and manufacturing and heavy industry.
According to the state's economic development plan, manufacturing should account for 15% of GDP by 2020. This figure is likely to be met or even exceeded, as the sector already accounted for 11% of GDP in 2006 and the Sultanate has seen a substantial amount of new investment since then. Industry giants such as the Oman India Fertilizer Company have become essential players in the development goals. Important segments within the manufacturing sector include aluminum production, which was rejuvenated recently with Sohar Aluminum's $2.3bn investment in a new smelter; natural gas, which was discovered in large quantities in the mid-1990s; cement production; steel tubes; and various light goods industries such as textiles, soft drinks and biscuits.
In 2008, tourism accounted for just under 4% of the Sultanate's GDP, but the government plans to significantly increase that figure in the coming years by targeting upscale niche visitors who are interested in cultural, environmental and adventure tourism. Additionally, the state is focusing on upgrading tourism infrastructure and increasing advertising abroad, especially in the EU, the US and Asia. The expected growth in the sector should also stimulate job creation.
In other tourism news, Oman handed over the keys on October 8 to its first foreign resident freehold property owners, a further sign of the Sultanate's commitment to expanding the sector. The new homeowners were welcomed to The Wave, Muscat - a $2.4bn Integrated Tourism Complex (ITC) that includes 4000 villas and low-rise condominiums as well as three hotels, a golf course and a marina.
Additionally, in an effort to further enhance its global image, the Oman Brand Management Unit (OBMU) was launched in December by the Ministry of National Economy and the Omani Centre for Investment Promotion and Export Development (OCIPED), in association with Landor Associates, a global branding consultancy firm. The ambitious project aims to brand the Sultanate as a country of "natural growth," with the eventual goal of increasing tourism, business investment and cultural exchange.
2008 saw the continuation of Oman's liberalization and privatization programs. This was especially apparent in the telecommunications industry, as on June 28 the Telecommunications Regulatory Authority (TRA) announced it had issued five mobile reseller licenses as part of a move intended to further liberalize telecom services in the Sultanate. Furthermore, in late November the TRA announced mobile operator Nawras had won a license to set up Oman's second fixed-line network. The award ended the monopoly of Omantel, with the Sultanate liberalizing the sector as part of efforts to encourage foreign investment to counter falling oil production.
Oman is certainly feeling the impact of a global recession. But with a diversifying economic base, ample reserves, high domestic demand and a strong program of infrastructure and development projects drawing investment, the Sultanate should see itself better equipped than others to handle the crisis in 2009. (OBG15.12)
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11.11 MOROCCO: Finding Energy
In a year of volatile energy prices, Morocco, with only modest reserves of its own, has been hit hard. The kingdom imports 96% of its energy requirements, while the national oil bill rose sharply in 2008 - coming in at $1.1bn in the first quarter of the year, 69% higher compared to the same period in 2007. With such high costs, it is no surprise that Circle Oil's discovery of natural gas in west Morocco's Gharb region has generated a deluge of media coverage.
Morocco announced Circle's testing of 3.32m cu feet of natural gas on November 12, but until extended tests are complete, it is difficult to evaluate the significance of the discovery. The National Office of Hydrocarbons and Mining (ONHYM) confirmed that the gas was found in well ONZ6 on the Ouled N'Zala Permit, according to the state news agency. ONZ6 is the first of six wells that Circle began to assess in September, following the detection of anomalies in a 3D seismic survey conducted in 2007. Work began in November on CGD9, a second well, while construction has also started on the platform of KSF8, a third well.
These wells are among about 100 in the Gharb basin, with Circle Oil and Cabre Oil being the two companies to exploit their resources. According to ONHYM, there are in total 29 oil exploitation companies working in on- and off-shore sites in Morocco.
But Morocco will not reshape its energy policies around a discovery where the yields are still largely speculative. Although its next-door neighbor Algeria has massive hydrocarbon reserves of 12.3bn barrels of oil and around 4.5trn cu meters of gas, Morocco has only 1m barrels of oil and 50bn cu feet of natural gas, making diversification a must. The kingdom has begun to pursue other energy options, including wind, solar and nuclear, as domestically produced alternatives to oil and natural gas imports.
The government is planning for a tenth of the national energy balance and 20% of national electric production to come from renewable sources by 2012, an impressive goal considering that the current level is just under 1%. Still, with a large and steady wind system and strong, consistent sunlight, Morocco certainly has the potential to reach this ambitious goal.
Thus far the major initiatives have focused on wind power, with wind-generated energy expected to supply 15% of total energy by 2020. Morocco's first wind installation was the 50-MW project in El Koudia El Baida, built in 2000, which was followed by the development of various other projects. Two additional new wind farms are currently under construction: a 130-MW field near Tangier and a 100-MW field in Taza, 100 km east of Fez. In addition to wind farms, solar plants have sprung up in Morocco. 2007 saw the construction of a plant in Tit Mellil, consisting of 1024 solar panels (50-KW), while Ain Beni Mathar (472-MW, including 20-MW solar) will be operational in 2009.
Although there have been preliminary discussions, nuclear power plants have not been developed as rapidly as other sources of renewable energy. In 2007, while on a state visit to the kingdom, French President Nicholas Sarkozy announced that France and Morocco would cooperate to develop civil nuclear energy. Both the US and Russia had previously made efforts to collaborate with Morocco to build the country's first nuclear power station, but neither the American company General Atomics, nor the Russian firm Atomstroiexport was able to move forward on the project. Though French cooperation was announced over a year ago, progress has been slow.
Amina Benkhadra, Morocco's minister of energy, mining, water and environment, emphasized to OBG that the installation of "a very specialized infrastructure" will mean that the first 900-MW unit will not be operational before 2017.
But despite the delay, nuclear energy is now an integral part of the country's investment program, according to Younes Maamar, CEO of Office National de l'Electricite (ONE), the state electricity company. "The decision has been taken, but it takes a very long time for a nuclear project to get under way," he told OBG.
International partnership and investment is an important part of the development of the Moroccan renewables plan, but the kingdom is taking additional steps to strengthen its domestic sector. At a meeting on renewable energy prospects for the Arab Maghreb countries held in Rabat in late October, Mouloud Ait Haddou, Morocco's general secretary of the Ministry of Energy, Mines, Water and Environment, announced plans for a new "knowledge campus" as part of its $3.2bn five-year renewable energy investment plan, which will run between 2009 and 2014. The campus is expected to open by 2010 as part of a $219m clean energy industrial park.
According to Driss Zejli, head of the Renewable Energy Economy and Technologies Unit at Morocco's National Centre for Scientific and Technological Research, the park will house long-term research projects, training courses and conferences, with its specific geographic location creating opportunities for knowledge sharing, technology transfer and science cooperation between Morocco and Europe, and between Morocco and other Arabic and African countries. (OBG25.11)
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11.12 Pakistan's Economic Comeback - IMF's View
Pakistan's economy is at a critical juncture. Inflation has doubled and is now running at 25%, the value of the rupee has fallen by a third since March and foreign exchange reserves are down to worrying levels. All this is occurring against the backdrop of the worst international economic crisis in sixty years.
These are precisely the type of circumstances in which the 185 members of the IMF look for support from this cooperative institution. So did Pakistan - resulting in the approval on November 24 by the IMF's Board of Directors of a $7.6b loan in support of the authorities' economic stabilization program.
How does the IMF see the economic and financial challenges facing Pakistan and how can it help to address them?
The first point to stress is that overcoming the current economic crisis will require hard choices and sustained action over the coming year. Fortunately, the strategy set out by the government, on which the IMF's support is based, provides a sound basis for action. The objectives are clear: first, restore overall economic stability and confidence by acting on key macroeconomic imbalances - which means reducing the unsustainably high fiscal deficit and tightening monetary policy to bring down inflation and strengthen foreign exchange reserves. And second, the adjustment program must be designed in a manner that ensures social stability and adequate support for the poor.
A second point is that while the necessary macroeconomic tightening will clearly involve some pain, it is important that the burden of adjustment should fall least on the most vulnerable members of Pakistani society. That is why for the IMF it was crucial that the government's program includes key social protection measures. Expenditure on the social safety net will be increased to protect the poor through both cash transfers and targeted electricity subsidies.
Third, it is important to point out that the program - and its conditionality - is based on the targets and measures that the authorities have themselves set for the next two years. The IMF is convinced that the best-implemented programs are the ones that are home grown and fully owned by the country.
Fourth, the success of the program hinges on sustained and forceful implementation. Strong and determined implementation of the reforms included in the program will allow the country to get its economy back on a sustainable path. Strengthening public sector institutions and governance will need to be a key dimension of this effort. In this respect, building domestic consensus around the measures included in the authorities' package constitutes a key factor in the period ahead.
Finally, while the key to success lies in the hands of the government and people of Pakistan, the international community also needs to support these efforts. To this end, the financing from the IMF will help to ease the path of adjustment and will provide a strong signal of support to the international community.
Other international agencies and bilateral donors are also providing support, but more financing is urgently needed to strengthen Pakistan's resilience to potential shocks, help finance the expanded social safety net, and allow for higher spending on development programs. The IMF stands ready to participate in any donor meeting. Working together, we can help Pakistan revitalize its economy and protect the poor during these difficult times.
Masood Ahmed is International Monetary Fund's Director for Middle East and Central Asia Department. Published in Khaleej Times on 11 December 2008.
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11.13 TURKEY: 2008 Year in Review
Politically and economically, Turkey had a frustrating year in 2008, with the government's reform program losing pace as a result of fighting a court battle to avoid removal from office, just as the effects of the global economic crisis began to set in.
The Oxford Business Group observed that in the biggest Turkish news story of the year, the country saw a senior prosecutor apply to the Constitutional Court in March to have the ruling Justice and Development Party (AKP) closed for allegedly seeking to undermine the country's secular regime. On July 30, the court ruled, by the barest margin, not to close the party or to ban 70 of its leading members, including Prime Minister Recep Tayyip Erdogan. The decision ended months of tension and uncertainty. However, the lost time in which much of the government's attention, and that of the markets, was focused on the court case could not be recovered, with the second half of the year seeing a general slowing of the economy.
Such is the extent of the current economic downturn that in November the administration announced it intended to apply to the International Monetary Fund (IMF) for a support package, with media reports saying the government would seek a new standby agreement worth $20-$25bn. However, as the year drew to a close, no final agreement had been reached.
In late November, the government announced it was preparing a package of measures to ease the effect of the economic slowdown and stimulate growth. The steps included guaranteeing bank deposits of up to 50,000 YTL, providing credit to small and medium size businesses and lowering some taxes. Again, as with the IMF deal, details of most of the proposals in the package had not been finalized as of late December. According to figures released by the state's statistics bureau in early December, Turkey's industrial output fell by 8.5% in October, the third month in a row production recorded negative growth, while in November the number of industrial plants in use dropped by a record 9.7% to just 72.9%, compared to the same month in 2007.
There could be an upside for Turkey from the global crisis. Inflation, which in November was running at an annual rate of 10.76% for consumer prices and 12.25% for wholesale, is expected to fall in the coming year as demand for both domestic and imported goods declines.
On December 11, Kursad Tuzmen, Turkey's state minister for foreign trade, said exports this year would reach an originally projected $125bn, though he predicted this figure would contract by around 17% in 2009. Additionally, the minister said imports would decline by $50bn next year due to lower energy and commodities prices, having totaled $205-210bn in 2008.
The expected drop in exports is already making itself apparent. In November, exports fell by 22% year-on-year, with the important textiles sector seeing overseas sales drop by 26.15%. Turkey's automotive sector also felt the chill winds of the international downturn, with a number of leading marks either reducing output or halting production for extended periods late in the year. Leading producer Ford Otosan reported a 31% drop in net profits for the third quarter, while other manufacturers also saw earnings plunge.
Most of Turkey's automotive capacity is geared for export, mainly to the eurozone. With much of Europe slipping into recession during the last quarter of 2008, exports slumped, falling by 37.9% year-on-year in November. Domestically, too, the industry is in trouble, with car sales down by 35% in October compared to the same month in 2007, in part due to a lack of credit finance.
The Istanbul Stock Exchange (ISE) has also had a rollercoaster of a year, though since August the ride has been mainly downhill. Having opened the year above 55,000 points, the ISE's National 100 Index slid to around 35,000 in early July, before rallying strongly to peak above 40,000 points in August, in part as a result of the Constitutional Court's ruling in favor of the AKP. From that time onwards, the index has mainly been in retreat due to concerns over falling production, tighter credit and lower medium term prospects for the economy. Towards the end of 2008, the National 100 was hovering at around 24,000 points, well under half its level when the year began.
Looking ahead, the nationwide municipal elections scheduled for the end of March could have a major impact on the economy. Though Erdogan's government had vowed to avoid populist policies and increased spending ahead of the polls, many political analysts are expecting to see boosted funding allocations and investments in key regions such as the southeast, where the AKP hopes to shore up its support.
The lead up to the March municipal elections could also see an increase in political unrest, violence and protests, which could shake confidence in the economy. In December, there were at least three bomb attacks targeting local AKP branch offices, while there are concerns that the ruling party's efforts to wrest control of major municipalities in the southeast from the pro-Kurdish Democratic Society Party (DTP) could result in a bitterly contested campaign.
In any case, Turkey can probably look forward to a year of belt tightening in 2009, with the Organization for Economic Cooperation and Development (OECD) predicting 1.6% growth for the Turkish economy next year, well down on the 7% rate averaged over the past five years. Though the OECD did project a higher growth rate of 4.25% in 2010, that prediction is dependent on the recovery of the global economy. For Turkey, wealth at home will rely on economic health abroad and the government's ability to manage the crisis. (OBG17.12)
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11.14 TURKEY: Faltering Reform Drive: Erdogan Striking Nationalist Tones
Amid corruption scandals and stagnating reform, Turkish Prime Minister Erdogan, praised in Europe as a modernizer, is seeking refuge in nationalist rhetoric, adopting a tougher stance on the Kurds and moving closer to the country's military leaders. The public prosecutor in Adana, a city in southern Turkey, has clear ideas on how the state ought to treat teenagers who protest by throwing stones. In his view, they should be arrested and locked away, preferably for life.
Recently, the prosecutor demanded up to 58 years in prison for six young Kurds between the ages of 13 and 16. During a demonstration in October, the students threw stones at police officers, shouted illegal slogans and unfurled posters touting the banned Kurdistan Workers' Party (PKK). Because such teenagers, in his view, had to be the "children of terrorists," the provincial governor recommended punishing the families and cancelling their claims for pension and social benefits.
For months, trouble has been brewing once again in Turkey's Kurdish regions, and both sides are reacting in the customary way. Adolescents incited by the PKK are setting car tires on fire and committing acts of violence. In response, the military has brought in tanks and the courts are threatening the demonstrators with increasingly grotesque punishments.
Turkey, which is seeking entry to the European Union, is having trouble getting its most pressing problem under control. Prime Minister Erdogan, who only six years ago was still making cocky promises to put an end to the frustrating, drawn-out conflict, and who in 2005 was his country's first prime minister to speak out about the Kurdish conflict, is as helpless today as his predecessor was.
Long praised in the West as a peacemaker and reformer, a man who has made great strides in bringing his country closer to Europe, Erdogan is now revealing reactionary tendencies. He has recently stopped calling for "cultural rights" for minorities, and is ignoring the human rights abuses being committed by Turkish police. Instead, he now prefers the language of the generals and nationalists. Turkey, Erdogan said excitedly in a recent speech to a Kurdish audience, is "one nation, one flag, one country." He added: "whoever doesn't like it can leave."
When Dengir Mir Mehmet Firat, the Kurdish-born deputy chairman of Erdogan's conservative Islamic party, the AKP, resigned from his position, the premier replaced him with a hardliner who prefers military force over dialogue when it comes to the Kurdish question.
Rapprochement With Military Leaders?
What is happening with Erdogan? Has the ambitious modernizer had a change of heart? Has he lost his desire to drive his country toward the West? Or has the refined Islamist sought an alliance with the generals after all, after his party barely managed to escape a ban sought by the country's military leaders this summer?
Much points to a pact between the very different partners. Erdogan has been all too willing to support a campaign by military officers to curtail freedom of the press and opinion. In a dispute between the new Chief of the Turkish General Staff, Ilker Basbug, and Taraf, a small daily newspaper, the increasingly autocratic Erdogan threw his support behind the commander.
Taraf, currently Turkey's most courageous newspaper, had published documents suggesting that the general staff had learned in advance of an attack by the PKK on a military outpost near the Iraqi border. Seventeen soldiers were killed there in the Oct. 4 attack, and it has been suggested that they may have been sacrificed in an effort to spark public outrage.
Anyone who publishes such reports, General Basbug said irately, is "partly responsible for the bloodshed." He threatened to shut down the newspaper. "Be careful," Erdogan said in a warning to the journalists, noting that the "public peace" is a greater good than the freedom of the press. In November, the prime minister himself took action against the press, ordering his press office to cancel the accreditation of seven journalists working for the Dogan media conglomerate.
Hard Line On Press
Erdogan had already recommended in September that the newspapers and television channels owned by Aydin Dogan, including such mass-circulation newspapers as Hürriyet, Milliyet and Posta, should be boycotted. By that point the premier and his adversary were already embroiled in a war of words. The powerful media czar had published detailed stories on the AKP's possible involvement in a scandal over political contributions in faraway Germany.
A Frankfurt court had convicted members of Deniz Feneri, a religious charity, of embezzling donations from Germans of Turkish descent worth €18 million ($23 million). The money, according to the prosecution, ended up in the "AKP environment." The extent of Erdogan's involvement in the case remains unclear, but his party's reputation is tarnished. Ironically, it was the AKP that has consistently prided itself, as an Islamist party, in being free of corruption and of having distanced itself from the sleaze of former administrations.
Erdogan, increasingly irritable and thin-skinned, appears to be running out of luck. Even the economy, previously the greatest plus in the AKP government's six-year tenure, is slowing down. For weeks, cabinet ministers and even President Abdullah Gül had led the world to believe that Turkey would remain largely untouched by the global financial crisis. No one should be alarmed, they said, because the country had gone through its own severe crisis in 2001 and, after that, had taken decisive steps to prevent it from happening again.
Economic Slowdown Could Hurt Prospects
But since then Ankara has entered into surprise negotiations with the International Monetary Fund for billions of euros in new loans. Hundreds of thousands of job are in jeopardy, experts warn. Once economic growth declines, the government can expect to lose some of its support next year. Pollsters predict that the AKP will get only 34% of the vote in local elections in March, compared to 47% in the 2007 parliamentary election.
"They are being exposed in the current crisis, the so-called reformers," says Cengiz Aktar, a political scientist and well-known Erdogan critic, who accuses the government of incompetence and mediocrity. "In reality, the groundwork for most of the economic reforms was already laid before the AKP came into power." Political reforms, says Aktar, were only implemented between 2002 and 2004 - in other words, until Turkey was granted candidate status for EU membership.
Since then, the only attempts at reform have favored devout wearers of the headscarf. This, says Aktar, is why he is not surprised by Erdogan's growing emphasis on nationalism and Islam. Instead, Aktar characterizes the changes taking place in Turkey as a "restoration" and, therefore, as a "normalization of Turkish conditions." There have always been marriages of convenience between the mosque and the barracks in Turkey. This, says Aktar, is why it is all the more important that Europe does not abandon the country now.
Aktar believes that unless Brussels applies pressure on Turkey to continue with reforms, Erdogan's chauvinistic tendencies will only increase. Then, he warns, "we will soon be dealing with a Turkish Bonaparte." (Der Spiegel09.12)
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11.15 GREECE: Politics Rocked by Riots
Recently Athens has been paralyzed by days of violent protests, triggered by the death of Alexandros Grigoropoulos, a 15-year-old schoolboy, who was shot and killed by police on December 6th. Adding to the pressure on the beleaguered government, public-sector workers staged a 24-hour strike in protest against its economic policies, while civil unrest has spread from Athens to a number of other Greek cities and to the island of Crete. The root cause for the demonstrations - the worst since a student uprising toppled Greece's military dictatorship in 1974 - is a combination of poor underlying economic performance and deep-seated frustration at what is widely viewed to be a corrupt political class.
Emerging strains
A particular source of disgruntlement among younger protestors (which have comprised the majority of those involved in the riots) concerns the high rate of youth unemployment. Greece's overall jobless rate may have fallen back slightly this year, from 8.3% in the first quarter to 7.1% in August, but this masks deep-seated structural problems. Among 15-24 year olds, unemployment in the second quarter of 2008 stood at 15.5%, compared with just 3.7% for 45-64 year olds. This reflects rigidities in the labor laws, which make it especially difficult for companies to lay off employees once they have been hired. The New Democracy (ND) government came to office in 207 fully committed to the EU notion of flexicurity, but has so far done little to minimize rigidities in the labor market.
The Greek economy has expanded at a robust pace in recent years, with real GDP growing at an annual average of around 4.5% between 2003 and 2007. However, as the financial crisis has escalated and the global downturn has taken root, a number of weaknesses in the Greek economy have become more visible. Consumers have felt squeezed over the course of 2008 for a number of reasons. Although inflation has eased back slightly in recent months, it remains stubbornly high at around 1% above the euro area average, thereby eroding competitiveness. Meanwhile, the financial turmoil has exposed the consumer credit boom that Greeks have enjoyed since 2003. Back then, household debt was equivalent to just under 10% of GDP. By the end of 2008 this figure had risen to 48% of GDP. Although still below the EU average, it represents a very rapid acceleration in credit growth.
As banks tighten lending and raise their fees and interest rates on outstanding debt, consumers are starting to feel the pinch. The problems also extend to the property market. House prices have grown strongly since the start of the decade, albeit not to the same extent as the housing bubbles seen in the UK and Spain. But for a country with the highest share of home ownership in the EU (around 80%), a sharp fall in property values of about one-fifth so far this year has led to many Greeks finding themselves worryingly exposed.
In light of this, tax reforms introduced by the government in September were wildly unpopular. A key aspect of the tax bill was to abolish the €10,500 tax free allowance for the self-employed and instead impose a 10% tax rate on them. According to the minister of economy and finance, George Alogoskoufis, the only way to avoid tax evasion by the self-employed was to apply such a blanket tax. Around three-quarters of all income tax in Greece is paid by 1.5 million wage earners, while only one-quarter is paid by the approximately 1 million self-employed.
A sense of injustice
Another grievance of the demonstrators has been social welfare. The Greek government's ability to finance services such as education and healthcare is significantly constrained by the high level of public debt, which has risen to around 94% of GDP (and has prompted increasing investor concerns over longer-term fiscal sustainability). While the ND government promised to spend 5% of GDP on education during its election campaign in 2007, the 2008 budget's allocation amounted to only 2.5%. Budget resources allocated to health care for 2009 equate to just 1.4% of GDP. Although the level of state spending on social welfare in Greece as a percentage of GDP is on par with that of its EU partners, standards of education and healthcare services do not compare favorably with those in most other EU countries. There is a widespread perception that the money being spent is being siphoned off by corrupt officials or simply wasted.
Widespread frustration with perceived corruption by government officials has also helped to fuel the recent protests. The demonstrations have taken place against the backdrop of a scandal involving the exchange of land between the Vatopedi monastery and the state. Church land was allegedly swapped for undervalued state properties, which the monastery sold for development at a substantial profit. The opposition parties have accused some senior government ministers of profiting tidy sums from the deal. The loss to the state is estimated at €100m.
A parliamentary committee has been engaged in a probe into the affair for the past month and is due to present its findings in a report this week. The ND has a majority of representatives on the committee, and critics have questioned the likelihood that any ministers will be found guilty of wrongdoing. The most likely outcome is that the committee will file an inconclusive report and the four opposition parties will respond by producing dissenting reports accusing the government of corruption.
The Vatopedi scandal has contributed to plummeting support for the ruling ND in recent months. In September ND's standing in opinion polls fell behind that of the main opposition Panhellenic Socialist Movement (Pasok) for the first time in five years. Pasok's lead over ND increased to around 6% in December. The opposition parties would stand to gain from an early election, and as a result they have done little to encourage a swift conclusion to the protests. The government currently holds 151 of the 300 seats in parliament, giving it a wafer-thin majority. Should ND decide to declare a state of emergency and call in troops to restore order, this could trigger defections from its own ranks and lead to an early election being called. (EIU10.12)
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11.16 GREECE: Current Woes Expose Constraints Reflected In A1 Rating
Moody's (http://www.moodys.com) said that Greece's current political unrest highlights the fragility of the country's institutions, which underpins Greece's comparatively low sovereign rating, with Malta the lowest among euro area sovereigns, says Moody's Investors Service in a Special Comment, entitled "Greece: Political Unrest and Credit Crisis Erode the Government's Fiscal Space". Moreover, the global financial and economic crisis is eroding the country's fiscal margin for maneuver.
"The Greek governments is constrained by a large public debt, as well as by the combined effects on its balance sheet of a sharp economic slowdown, support to the banking sector, and a rise in its relative cost of funding -- all of which make it more difficult for the government to respond to popular demand in the context of the riots that began in Athens on 6 December 2008," explains Arnaud Mares, a Senior Vice President in Moody's Sovereign Risk Group. "The current deadlock between the government and the demonstrators is exposing a vulnerability that underpins the relatively low level of Greece's A1 rating: namely, the inability to build up a social and political consensus needed for reform."
Moody's understands that the riots are the consequence of widespread discontent, mainly among Greece's youth, regarding their economic and social prospects, and dissatisfaction with the government. However, the roots of the turmoil do not rest with the current government alone, but rather with a deeper and broader mistrust and disappointment with the political establishment.
Moody's also notes that Greece's margin for fiscal flexibility will erode if the current widening of its borrowing costs relative to other European countries were to be sustained. "In a country where public debt amounts to 93% of GDP, and where interest payments amount to 11% of government revenues, such an erosion of fiscal flexibility could have a material impact and would reduce the likelihood of an upgrade of Greece's rating to the Aa range," says Mr. Mares.
Moody's believes that the combination of a (i) political situation that does not bode well for economic reform, and (ii) an economic situation that restricts the margin for maneuver of the government even further will likely reverse Greece's recently favorable trajectory of public debt metrics. However, Moody's does not base its ratings on debt levels per se and will monitor both the political and economic situations closely to assess whether the erosion of fiscal space for the Greek government is temporary or more permanent in nature.
Moody's currently rates Greece at A1 with positive outlook. The last rating action regarding the Government of Greece was taken in January 2007 when the positive outlook was assigned. (Moody's 17.12)
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11.17 BULGARIA: Frozen Funds
Questions have been raised as to just how much progress Bulgaria has made since EU accession, with the European Commission (EC) making the unprecedented move of cancelling some funding due to the country's failure to deal with corruption.
In late November, the EC announced it would withdraw some €220m in EU funds from Bulgaria. The decision comes just as the head-on effects of the global financial crisis are beginning to be felt. The amount of money lost is small compared to the €11bn in EU funds that the country stands to receive until 2013, but the EC has warned that irregularities will not be tolerated. The move is a condemnation of Bulgaria's efforts to address fraud, corruption and conflict of interest allegations that have plagued the distribution of EU money.
The €220m were initially frozen after the EC released its July report entitled "Report from the Commission to the European Parliament and the Council: On the Management of EU-funds in Bulgaria." The funds are part of the PHARE program, one of the pre-accession instruments designed to help Central and Eastern European countries in their preparations for joining the EU, and the Transition Facility program, meant to aid institutional reforms necessary for the absorption of much larger amounts of EU assistance.
The report praised some "corrective steps" taken by the Bulgarian government, including procedural and legislative changes and high level appointments, such as the appointment of Meglena Plugchieva as both vice-prime minister, responsible for the coordination of EU funds, and head of the Bulgarian Anti Fraud Coordination Service.
Despite this progress, the report warned that the country still needed credible, structural reforms to address high level corruption and organized crime, which have crippled the country's already weak administration and judiciary.
To ensure progress on these issues, following the release of the report the EC withdrew the accreditation of the two agencies responsible for the distribution of EU funds - the Central Financing and Contracting Unit and the Implementing Agency at the Ministry of Regional Development - thereby freezing any funds that had not already been earmarked for projects. As the final contracting deadline was set for November 30, the two agencies proved unable to regain their accreditation in time to earmark the funds, thus losing €220m.
Reactions to the news have been mixed. Government officials expressed disappointment and emphasized that while Bulgaria still has a long way to go to meet the EU's requirements, the decision does not adequately recognize the reform measures already taken by the cabinet. Prime Minister Sergei Stanishev and Plugchieva have called the decision unfair, with Stanishev alleging that the commission has treated Bulgaria differently from other EU member states similarly struggling with corruption.
As the newest members of the EU, Bulgaria and Romania have been subjected to a scrutiny that other nations with similar problems have not experienced. By the time Romania and Bulgaria joined, the EU was already experiencing significant expansion fatigue and euro-scepticism. Critics of further expansion use the problems with Bulgaria and Romania as an argument against EU accession for other countries, such as Turkey, Ukraine, Croatia and Serbia.
In addition to having broad international political implications, Stanishev noted that the loss of funds could affect Bulgaria's internal political situation, especially in regards to next year's general election for parliament. Already, the right-wing opposition in parliament has called on the government to resign, with the group Democrats for a Strong Bulgaria calling for early elections ahead of the 2009 regular elections for parliament. While such a dramatic move seems unlikely, the government is under increasing domestic and international pressure.
Pressure might be just what the Bulgarian government needs to start enacting substantive legislation on corruption. "It is disheartening that rapid progress has not been made in a number of identified areas," Geoffrey Van Orden, European Parliament rapporteur to Bulgaria, told OBG. He added that in many respects Bulgaria's progress post-Communism has been inspiring, but that change and greater commitment are needed to make a real difference.
Similarly, at a regular briefing in Brussels, Krisztina Nagy, spokesperson to EU Enlargement Commissioner Olli Rehn, acknowledged Bulgaria's recent steps, but said many of them are only "promise of future action and have not yet delivered concrete results." While Bulgaria has been chastised for its failure to adequately address its problems with corruption, it may be just what the country needs to produce more fruitful results. (OBG05.12)
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