26 February 1995

CABINET COMMUNIQUE

(Communicated by the Cabinet Secretariat)

At the weekly Cabinet meeting today (Sunday), 26.02.95:

1. The Cabinet, sitting as the Ministerial Committee on National Security Affairs, was briefed by security personnel on security matters.

The Cabinet was also briefed by the Prime Minister and the Foreign Minister on political matters.

2. The Cabinet expressed its full confidence in the immunity of the Israeli economy. The Cabinet is certain that the positive trends which characterized the economy in 1994, and at the beginning of 1995, will continue.

The Cabinet views the provident funds as a stable avenue of investment, mostly covered by Government bonds. The Cabinet stresses that the redemption value of Government bonds is guaranteed; this has granted longer-term stability to the provident funds. The negative yields recently recorded by the provident funds is only temporary, and mainly derived from the drop in stock prices which represent only about 10% of the entire asset portfolio.

The high percentage of Goverment Bonds within the asset portfolios of the provident funds is what ensures a real, positive, certain and fair yield for the long-term investor.

The average real yields of the provident funds over the past five years, including 1994, were about 3.5% (despite the temporary declines of 1994).

The Cabinet has noted the statement of the Bank of Israel Governor, that inflation is now declining, which is reflected in public expectations regarding this year’s rate of inflation. The Cabinet also noted the statement of the Bank of Israel Governor, that the Bank of Israel’s monetary policy will aim to decrease interest rates, in accordance with progress in the achievement of inflation goals. The Bank of Israel will operate the tools of monetary policy in order to promote the stability of the capital market.

The Finance Ministry and the Bank of Israel briefed the Cabinet on the achievement of an agreement between them, enabling the operation of a mechanism to intervene in the Government bond market, moderating extreme declines in bond prices when deemed necessary.

Accordingly, the Cabinet approved the amendment to the Short-Term Loan law, whose primary aim is to increase the short-term loan program by NIS 5.5 billion to NIS 15.5 billion.

3. The Cabinet decided to join the Global Environment Facility.