Israeli Economy Pauses Following Yassin Killing

(March 25, 2004)


Classified U.S. diplomatic cables, leaked by the whistleblower site WikiLeaks, contain accounts of the State Department's uncertainty towards the economic impact of Israel's assassination of Sheikh Ahmed Yassin in Gaza. The cable does however suggest that the death of the wheelchair-bound Hamas spiritual leader, who was killed by an IAF missile as he left a mosque in the Gaza Strip, would seriously affect tourism in Israel.


UNCLAS SECTION 01 OF 02 TEL AVIV 001839

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN IS ECONOMY AND FINANCE ISRAELI PALESTINIAN AFFAIRS
SUBJECT: Israeli Economy Pauses following Yassin Killing


This cable is classified Sensitive but Unclassified. Please handle accordingly.

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Summary
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1. (SBU) The jury is out on the economic effect of the Yassin killing, but it already appears that tourism is taking a significant hit. While there has been only a moderate fall in Tel Aviv Stock Exchange (TASE), the shekel has fallen steadily since Monday morning against the dollar. Our personal contacts tell us that Israelis are truly worried, and staying home. So are their overseas relatives, who in many cases have cancelled their Passover visits to Israel. If the Palestinian reaction leads to increased terror over the longer term, the impact will be even more significant. This reality stands in contrast to Ministry of Finance statements arguing that the effects will be minimal.

End Summary.

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Tourism: Is the Canary Still Breathing?
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2. (U) Historically, heightened security concerns in Israel have hit tourism first and most directly. Until the killing, sector trends were positive: the Hotel Association reported recently that night stays in hotels in February 2004 were 33% higher than the same month a year ago. This is an impressive increase, even taking into account preparations for the Iraq conflict last year. Right now, media commentary indicates that tourism cancellations are already notable and increasing, and that a longer-term escalation of the security situation could be ruinous.

3. (U) At first, predictions were not dire. On Wednesday March 24, Rafi Farber, Chairman of the Economic Committee of the Hotel Administration, said that there had been no mass cancellations, but that new reservations were drying up. Just one day later, he told Israeli Army radio that tourist agencies around the world were starting to get calls from panicked tourist groups canceling their trips to Israel. As for the future, Farber said repercussions from the killing could lead to a loss of up to three hundred and fifty thousand tourists and losses of half a billion dollars.

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Business Conferences On-Track, but Valencia Cancels
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4. (U) The Yassin killing took place against a background of renewed hope in the financial community. Israeli business leaders, who were looking forward to a significant number of conferences and delegations scheduled for this spring, are closely watching the fate of two back-to-back high- tech/venture capital conferences scheduled for next week: the Euro Tech Tour, and the Israel Venture Association conference. So far reports indicate cancellations for these conferences have been minimal. Israelis remain on the watch of any indication, however, about high-profile, future visits. A Los Angeles Times report on March 24 that the security situation in Israel could lead to the cancellation of California Governor Schwarzenegger's planned trip to Israel in early May received prominent press play. In its March 25 edition, Maariv reported that American insurance companies were canceling the validity of travel insurance policies to Israel. Israeli commentators noted these disturbing facts as they worried that the increase in tensions could negatively affect efforts to increase inward investment, which is coming just as there is renewed interest in the Israeli market.

5. (SBU) What really got the Israelis' attention, however, was the cancellation of a major, high-profile sports event. This was the Spanish club Valencia's refusal to come to Tel Aviv next week for a Euroleague playoff basketball game, and its decision to forfeit the game instead. Today's papers gloomily predicted that the Euroleague Final Four set for Tel Aviv in late April, one of the biggest sporting events in Israel in recent years, would be moved to another country. Estimates of the losses run into millions of dollars for this event alone.

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Financial Market: So Far, Relative Sobriety
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6. (U) Foreign exchange and Tel Aviv Stock Exchange (TASE) participants demonstrated restraint in the first three days following the Yassin killing. The dollar strengthened by a fairly minimal 0.58% from NIS 4.483 on Friday, March 18 to NIS 4.5090 on Wednesday, March, March 24. During trading on Thursday, the dollar crossed NIS 4.52, the highest level in months, but still not significantly outside its recent trading range. The TASE 25 declined 1.8% the day of the killing, and a further 2.4% on March 24.

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Professional Commentary: A Limited Effect, Provided...
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7. (SBU) Professional economists believe the Yassin impact will not be severe, provided it does not bring with it a long-term increase in terror. Amir Eisenberg, a capital markets analyst for the daily Maariv, claimed March 23 that market fluctuations were modest relative to the dramatic nature of the assassination. He predicted that, if there were no new surprises, the markets would return to normal within a day or two. Dr. Yackov Sheinin, economist from the Economic Models consulting firm, and a member of the BOI Advisory Committee, was interviewed on the "Color of Money" radio program on Monday, March 23, regarding implications of the Yassin killing on the economy. Dr. Sheinin indicated that there had been "no hysteria" in the financial markets following the event. He indicated that the falls on the TASE were very moderate compared to the daily declines of 3 - 5 percent at heightened periods of escalation in the security situation during the last three years. Sheinin's assessment was that if things return to quiet in 2 to 4 weeks there should not be any serious implications for the economy.

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Ministry of Finance Reaction: A One-Time Hit
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8. (U) The March 23/24 edition of Globes reported that the Ministry of Finance views the impact in terms of a one-time hit to the economy. The action, they believe, will minimally impact tourism, investment and private consumption. Over the long term, tourism, investment and exports are all expected to increase this year and in 2005.

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Comment: Truly Scared Israelis Will Retrench
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9. (SBU) We believe the GOI is generally underestimating the short-term economic impact of the Yassin killing. Many of our Israeli colleagues and friends are telling us that, truth be told, they are extremely worried about the Palestinian reaction to the Yassin action. Malls and restaurants are significantly emptier than usual and the word on the street is: stay home and enjoy family during this holiday season. This is sure to impact on consumer spending and investment.


Source: WikiLeaks