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Israel Business & Economy: State of Israel Bonds

State of Israel Bonds refers both to securities issued by the government of Israel and to the commonly-used name of the company that is the exclusive underwriter for Israel bonds in the United States. The formal name of the company is the Development Corporation for Israel (DCI), and it is headquartered in New York City. As of October 2016, Israel Maimon is the CEO and President of the organization.

The idea of floating an overseas bond issue was conceived by Prime Minister David Ben-Gurion in 1950 and was endorsed by Finance Minister Eliezer Kaplan and Labor Minister Golda Meir. Following the 1948 War of Independence, Israel was mired in a sever economic crisis and was in desperate need of an infusion of financial resources to help build, develop, strengthen or modernize nearly every sector of the economy.

The arrival of hundreds of thousands of new immigrants to Israel's shores in the first few years after its establishment compounded the economic crisis. With no impediments to immigration, Jews from Europe - including Holocaust survivors and internees from displaced persons camps - set sail for Israel, while Jews from the Middle East came to the Jewish state after being drive out from their homelands. Many immigrants were forced to live in primitive shelters, ma'abarot, and food was scarce and severely rationed.

In September 1950, Ben-Gurion convened an urgent meeting of American Jewish leaders at the King David Hotel in Jerusalem to discuss the viability of issuing Israel bonds. Among the early advocates of Israel bonds were former secretary treasurer Henry Morgenthau Jr., Rudolf Sonnenborn, Sam Rothberg, Julian Venezky and Henry Montor.

The following spring, Ben-Gurion traveled to the United States to personally launch the sale of Israel bonds, beginning with a mass rally at New York's Madison Square Garden and subsequently traveling to other cities throughout the U.S. In 1951, the sole offering of Israel Bonds was the Independence Issue, paying 3.5 percent interest. First year purchases more than doubled Ben-Gurion's projections, topping $52 million.

Development funds generated through the sale of Israel bonds were quickly put to work, and within 6 years bond sales alone accounted for 35% of Israel's special development budget. The National Water Carrier irrigated nearly half a million acres, allowing Israel to become agriculturally self-sufficient. Towns were built for new immigrants. The Dead Sea Works became Israel's first major industrial undertaking. Power plants helped alleviate Israel's lack of energy resources. New ports were built to receive vital imports and increase Israel's export potential. Transportation networks were constructed and expanded throughout the country.

As Israel's economy continued to grow, so too did the Israel Bonds organization, with the sale of bonds becoming global in scope. In addition to the United States, Israel Bonds offices opened in Canada (through Canada-Israel Securities, Ltd), Europe (through Development Company for Israel UK Ltd) and South America.

Annual sales reached new levels, passing $250 million in 1967 during the 6-Day War, $500 million in 1973, and eventually, more than $1 billion in 1991. As sales increased, so too did Israel Bonds' base of support, growing the the Diaspora Jewish community to other supporters of Israel as well including state and municipal governments, labor unions, corporations and financial institutions. A significant aspect of the investment appeal of Israel bonds was the fact that Israel had never defaulted on payment of principal or interest.

In the 1990's, the efforts of the Israel Bonds organization program took on an historic human dimension, with funds being utilized to assist in the resettlement of the more than one million immigrants from the former Soviet republics and Ethiopia. Included in the massive population influx were scientists, engineers, and scholars who helped take Israel into the next phase of its economic development, as the nation became a global high-tech powerhouse.

In September 2004, the Bank of Israel completed a study assessing the history of Israel Bonds and its comprehensive report praised the organization as "extremely important not just as a stable source for raising external capital but also for meeting other important goals (including) diversification of sources – particularly during times when the government of Israel finds it difficult to raise funds from external sources."

By the beginning of the 21st century, the Bonds organization had provided Israel with $25 billion in development capital. As Israel began an intensified period of infrastructure development that included enhanced transportation networks, port expansion, renewed industrial development, and continued cultivation of the Negev, the government again looked to Israel Bonds to help fund these ambitious new undertakings.

An eCommerce site for Israel bonds was launched in 2011, and between 2011 and 2016 approimately 50,000 individuals purchased $125 million in Israel bonds through the website.

In 2013, U.S. Israel bond sales surpassed $1.12 billion, for the first time exceeding the $1 billion mark. Domestic sales also exceeded $1 billion in 2014 and 2015.

DCI launched “The Alternative BDS - Bonds Donated to Schools,” in June 2016, a program which encourages donations of Israel bonds to academic institutions.

An all-time record number of Israel bonds were sold in the United States during 2016.  Announcing in late February 2017 that more than $40 billion of Israel bonds had been sold globally since it's inception in 1951, Finance Minister Moshe Kahlon praised the fact that in the previous year alone $1.127 billion in Israel bonds had been sold in the United States.  

The following bonds are currently offered by the government of Israel:

  • Jubilee Issue Bonds – fixed rate 2, 3, 5 and 10-year bonds; $25,000 minimum investment and increments of $5,000. Interest is paid semi-annually on May 1 and November 1.
  • Maccabee Issue Bonds – fixed rate 2, 3 and 5-year bonds; $5,000 minimum investment and increments of $500 . Interest is paid semi-annually on May 1 and November 1.
  • Sabra Savings Bonds – fixed rate 3-year bonds; $1,000 minimum investment and increments of $100. Interest paid upon maturity.
  • Mazel Tov Bonds – fixed rate 5-year bonds; $100 minimum investment and increments of $10, limited to $2500 per day for each purchaser and holder. Interest paid upon maturity.
  • eMitzvah Bonds – fixed rate 5-year bonds; $36 minimum investment and increments of $18. Maximum allowable amount purchased by one person in a transaction, registered in the name of one holder, is $90. Interest paid upon maturity. May only be purchased online.
  • Floating Rate LIBOR Bonds – variable rate 2, 3 and 5-year bonds; $5,000 minimum investment and increments of $500; interest paid semi-annually on June 1 and December 1.

Rates on these bonds change approximately twice per month.

Sources: Israel Bonds;
Record $1.1 billion in Israel Bonds sold in US in 2016, JTA, (February 28, 2017)
Encyclopaedia Judaica. © 2008 The Gale Group. All Rights Reserved.