Jerusalem, 28 April 1998

Prime Minister’s Office
Media Adviser of the Prime Minister

Ministry of Finance
Spokesman and External Relations

Bank of Israel
International Affairs and External Relations

PRESS RELEASE: Foreign-Currency Liberalization

All foreign-currency restrictions on households and the business sector are abolished, except for those applicable to institutional investors and derivatives transactions of nonresidents.

The Prime Minister, Mr. Benjamin Netanyahu, The Finance Minister, Professor Yaacov Neeman, and The Governor of the Bank of Israel, Professor Jacob A. Frenkel, today announced a change in the Foreign Exchange Control regime, in effect permitting any foreign-currency activity or transaction, except for a short list of restrictions. The list contains restrictions on institutional investors (provident funds, pension funds, and insurance companies) and on some derivatives transactions of nonresidents.

This decision is in line with the Prime Minister’s announcement of June 1997 that with the approach of Israel’s 50th Anniversary, the Foreign Exchange Control regime would change, and in accordance with the government decision of 13 August 1997.

The step announced today completes the process of removing foreign- currency restrictions on Israeli residents individuals and businesses a process which started at the end of the 1980s. The change will enable residents to enjoy complete freedom to engage in transactions with nonresidents in both foreign and local currency. This will simplify the implementation of transactions and expand the opportunities available to residents in the management of their assets and liabilities portfolios. The freedom to engage in such activity will increase competition in financial services and thereby reduce financing costs. The change in the control regime is an important factor in Israel’s integration into the global economy. It will thus encourage foreign investment in Israel’s economy helping to boost growth and create employment and will open new channels for investment abroad and for domestic savings.

It is also announced that the changes will be accompanied by legislation intended to broaden and strengthen the basis of the reporting requirements of the Foreign Exchange Control, in accordance with the principle of replacing control with improved reporting. This will enable the ongoing and reliable monitoring of capital flows into and out of Israel’s economy which is necessary to continue conducting an efficient monetary policy.

The main transactions which will no longer be restricted are:

Individuals investments abroad: Individuals will be permitted to invest abroad freely, including in land and real estate. Hitherto, such investments were allowed only in time-sharing projects.

Bank accounts: Individuals and companies will be permitted to manage bank accounts abroad, in either NIS or foreign currency. Hitherto, only exporters could do so.

Unilateral transfers: All quantitative restrictions applicable to all types of unilateral transfers abroad, including support payments, gifts, and transfers abroad by a resident who has emigrated from Israel, will be abolished.

Holding foreign currency in cash: The restriction on holding foreign currency in cash will be abolished, and payments in foreign currency will be permitted in cash or by check, between Israeli residents as well as between residents and nonresidents. The restriction on taking NIS out of Israel and on receiving NIS from nonresidents including receipt of NIS as payment for exports will be removed.

Presentation of documents: The requirement to present documents when carrying out a transaction with a nonresident in NIS or in foreign currency will be abolished. However, a report on the nature of such transactions will be required, in order to enable reliable and informed analyses of capital flows to be performed.

Direct activities in foreign currency or with abroad: Such activities will be permitted not only via authorized institutions in Israel, i.e., authorized dealer banks, brokers, money changers, and credit-card companies, but directly with foreign financial intermediaries. This will increase competition in the financial sector and improve its efficiency

These changes will take effect when the administrative arrangements are finalized.

The principal transactions regarding which restrictions will remain in force are:

The remaining restrictions on institutional investors, the prohibition of direct and portfolio investments abroad by pension funds and insurance companies, the prohibition of provident funds direct investment abroad, and the restriction on their foreign-currency portfolio investments (up to 5 percent of the value of their portfolio) will be removed gradually in the next stages of the liberalization process, in accordance with the policy of taxation of Israeli residents investments abroad. In this context it is relevant to note that there are currently no restrictions on investments abroad by banks and mutual funds.

The restrictions on NIS/foreign-currency derivatives transactions by nonresidents will be removed after the implications of the removal of the restrictions on transactions of households and individuals announced today have been examined. This measure is intended to remove the one-month restriction on NIS/foreign-currency derivatives transactions implemented by nonresidents and denominated in foreign currency (such transactions are currently permitted without restriction for residents, but for nonresidents are limited to a one-month horizon). Note that for some time nonresidents have been permitted to deposit and borrow NIS, to invest in the Tel Aviv Stock Exchange, and to undertake derivatives transactions in foreign-currency-indexed local currency without restriction. As stated, the restrictions will be removed after the effects of the liberalization measures announced today regarding Israeli residents have been reviewed.