Israel needs such a fund, now that it opened the Tamar gas field and plans to open the Leviathan field in 2016.
By TOVAH LAZAROFF, NIV ELISTamar natural gas rig 370(photo credit: Albatross)
The government on Sunday approved the creation of a sovereign wealth fund to manage profits from Israel’s natural gas fields and prevent the influx of dollars from overvaluing the shekel.But the fund’s creation only becomes final after the Knesset legislates it.Many states that discover large natural resource reserves set up such funds to avoid what economists call “Dutch disease.” Selling natural gas on the world market would flood Israel’s economy with dollars, making them cheap relative to the shekel.A strong shekel, in turn, would make Israeli goods more expensive on the world market, hurting exports.Stashing a portion of the profits in a sovereign wealth fund, which would invest the dollars abroad, ensures that the natural gas does not end up inadvertently hurting the economy’s trade sector.Israel needs such a fund, now that it opened the Tamar gas field – Israel’s first – in March and plans to open the Leviathan field in 2016.The start to natural gas output was a factor in pushing the shekel to a 17-month high against the dollar last week, prompting concern from exporters and leading to central bank intervention in the foreign exchange market to contain the shekel.In his final annual report earlier in April, Bank of Israel Gov. Stanley Fischer urged the government to create a sovereign wealth fund as quickly as possible.A committee representing the Prime Minister’s Office, the Finance Ministry and the Bank of Israel had recommended that the fund invest part of the profits abroad but reserve a portion for investment in education and defense projects.The cabinet announced plans to create a sovereign wealth fund in February 2012 and approved it in October, but the Knesset never got around to passing it before the government fell later in the year.
As a result the new cabinet had to reapprove the fund’s creation.Flows to the fund will come from a progressive tax of as much as 60 percent on natural gas revenue and only after the exploration firms recoup a large part of their investment.Other natural gas income, such as royalties and corporate taxes, will stay in Israel and boost government coffers.Under the bill, the only way the government can have access to the fund’s principal in the event of an emergency is with the approval by at least 65 of the 120 lawmakers in parliament.Eugene Kandel, head of the National Economic Council – which assists the Prime Minister on economic issues – said he hoped the wealth fund bill will be quickly passed by the Knesset.The Bank of Israel-managed fund should start operating in 2016 or 2017 and invest outside of Israel, he said.Energy and Water Minister Silvan Shalom praised the decision of the government to establish the fund. While the minister would have preferred that the discussion of the fund occur in conjunction with one on the conclusions of the Zemach Committee – which provided recommendations on gas export allocations – the minister said he was satisfied with the decision that mere made on Sunday.Sharon Udasin and Reuters contributed to this report.
