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Bank of Israel Office of the Spokesperson, External Relations and Public Affairs March 19, 2012 Press Release Israel's International Investment Position (IIP), December 2011 The value of Israeli residents' assets abroad increased by about $250 million in the fourth quarter of 2011, to $256 billion. For the full year of 2011, the value of Israeli residents' assets abroad increased by $5.2 billion (2.1 percent); the increase was due mainly to the increase in Israelis' investments abroad and the increase in foreign exchange reserves. The balance of liabilities to abroad declined by about $300 million in the fourth quarter of 2011, and reached about $223 billion at the end of December. For the full year of 2011, the value of Israeli residents' liabilities to abroad declined by $11.2 billion (4.8 percent); the decrease was due mainly to the large decline in prices on Israeli markets, but also to net sales of makam by nonresident investors. The marked decline in the balance of liabilities and the increase in assets led, in 2011, to a notable increase of $16.4 billion in the surplus of assets over liabilities vis-à-vis abroad. The surplus of assets over liabilities vis-à-vis abroad in debt instruments alone fell in the fourth quarter of 2011 by about $1.5 billion, and reached about $56.8 billion at the end of December (a negative net external debt). The value of nonresidents' portfolio on the TASE declined in the fourth quarter of 2011 by about $5.7 billion, and at the end of December was $29.8 billion. POB 780 Jerusalem 91007 Israel Tel: 972-2-6552712/3 Fax: 972-2-6528812 www.bankisrael.gov.il Israel's net assets abroad (the surplus of assets over liabilities) increased in the fourth quarter by about $550 million, and reached $33.5 billion at the end of 2011.1 During the full year of 2011, the surplus of assets over liabilities increased by $16.4 billion— of which about $12 billion was a decline in liabilities to abroad, primarily due to a decline in share prices in Israel and sales of makam by nonresident investors. 1 The surplus of assets over liabilities vis-à-vis abroad for the years 1999–2011 was revised as the result of an adjustment in the balance of foreign direct investment. Due to the adjustment, the balance at the end of 2011 was reduced by $15 billion, and as a result, the liabilities to abroad declined, and the surplus of assets over liabilities vis-à-vis abroad increased by the same amount. A further explanation of the adjustment in direct investment follows in footnote 2. 2 Figure 1: The balance of Israel's liabilities abroad 1998-2011, $ billion 80 60 40 20 0 -20 03 /1 09 998 /1 03 998 /1 09 999 /1 03 999 /2 09 000 /2 03 000 /2 09 001 /2 03 001 /2 09 002 /2 03 002 /2 09 003 /2 03 003 /2 09 004 /2 03 004 /2 09 005 /2 03 005 /2 09 006 /2 03 006 /2 09 007 /2 03 007 /2 09 008 /2 03 008 /2 09 009 /2 03 009 /2 09 010 /2 03 010 /2 09 011 /2 01 1 -40 The balance of Israel's assets abroad increased in the fourth quarter of 2011 by about $250 million, to reach $256 billion at the end of December. In the full year of 2011, the balance of assets increased by about $5.2 billion; this derived from an increase in direct investment (about $3 billion) and an increase in the foreign exchange reserves (about $4 billion). Net investment of about $4 billion in foreign shares, primarily by institutional investors, was largely offset by price declines abroad ($3.5 billion). There were net sales of tradable bonds abroad of about $1 billion, which contributed to a decline in the value of the portfolio. In other investments, there was net new investment of $2 billion in deposits by Israeli banks into foreign banks, which was offset by a similar amount of net withdrawals by Israeli investors of their deposits in banks abroad. In 2011, there was little change in the composition of residents' securities portfolio abroad. About 38 percent was in direct investment, about 20 percent in stocks, and about 14 percent each in bonds, deposits, and other credit. 3 Figure 2: Composition of Israelis' Asset Portfolio Abroad* 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Equity investments Bond investments * Excluding the foreign exchange reserves. Credit and others 12/2008 12/2009 Bank deposits 12/2010 Direct investment 12/2011 The balance of Israel's liabilities to abroad decreased in the fourth quarter of 2011 by about $300 million, and reached $223 billion at the end of December. For the full year of 2011, the balance of the liabilities to abroad declined by about $11.2 billion (4.8%); the decline in liabilities to abroad derived primarily from the large decline in prices in the Israeli market, but also from sales of makam by nonresident investors. The value of Israeli shares in the portfolio increased $900 million in the fourth quarter; TASE price increases of about $2.6 billion were partly offset by net sales of $1.3 billion from one transaction in the chemicals sector. In the full year of 2011, the portfolio value of investment in Israeli shares fell by $13.4 billion, a decline that derived primarily from the large decline in Israeli share prices of $11.8 billion, and from net sales of about $700 million. The net sales derived from $1.4 billion in net sales in Israeli shares traded abroad, which were partly offset by net investment of $670 million on the TASE. The value of the investment in bonds declined in 2011 by about $5.3 billion, to reach $31.5 billion at the end of December. The decline in value came primarily in the fourth quarter, due to net sales of $4.5 billion in makam. Nonresidents’ net direct investments in Israel totaled $4.5 billion in the fourth quarter of 2011, $1.2 billion of which was an increase in non-distributed profit that was reinvested. For the full year of 2011, the flow of foreign direct investment into the economy was $11.2 billion, of which $6 billion was net investment (relatively dispersed among a large number of companies), and about $4 billion in accumulated profits. This investment flow was reflected in an increase over the full year of 2011 by about 10 4 percent in the balance of foreign direct investment in the economy, to about $66.5 billion at the end of the year.2 The value of nonresidents' financial portfolio on the Tel Aviv Stock Exchange fell in the fourth quarter of 2011 by some $5.7 billion, and at the end of December was $30 billion. In the full year of 2011, the value of nonresidents' financial portfolio on the Tel Aviv Stock Exchange declined by $11 billion. Nonresidents' bond holdings declined by $3.6 billion, and reached $10.3 billion at the end of December; the value of their stock holdings declined $4.9 billion to reach $12.5 billion. Despite the sales of bonds, there was a 1 percent increase in 2011 in the share of bond holdings and a similar decrease in the share of stocks in the portfolio (Figure 3). Figure 3: Nonresidents' Securities Holdings on the Tel Aviv Stock Exchange 50 45 Bonds Equity and mutual funds (portfolio) 40 Equity (direct investment) 35 $ billion 30 25 20 15 10 5 01 /2 00 06 6 /2 00 12 6 /2 00 06 6 /2 00 12 7 /2 00 06 7 /2 00 12 8 /2 00 02 8 /2 00 04 9 /2 00 06 9 /2 00 08 9 /2 00 10 9 /2 00 12 9 /2 00 02 9 /2 01 04 0 /2 01 06 0 /2 01 08 0 /2 01 10 0 /2 01 12 0 /2 01 02 0 /2 01 04 1 /2 01 06 1 /2 01 08 1 /2 01 10 1 /2 01 12 1 /2 01 1 0 2 The figures on foreign direct investment in the economy from 1999–2011 were revised. As a result of the adjustment, the balance of investments at the end of 2011 was reduced by $15 billion, and as a result, the balance of liabilities to abroad declined by the same amount. The adjustment was made within the framework of adopting OECD reporting standards, which recommend estimating the balance of foreign direct investment by nonresident investors on the basis of direct measurement of the balances, and not on the basis of accumulated transactions, as was done previously in Israel regarding some of the companies. The adjustment is based on an assessment calculated for 2009 under the new method, based on several sources, and then spreading out the difference between the new estimate and the previous one since 1999 in a gradual manner. There was no change in actual direct investment flows. 5 The external debt Israel's gross external debt fell by $5.6 billion in the fourth quarter of 2011, and at the end of December stood at about $102 billion. Most of the decrease was the result of about $4 billion in nonresident investors' sales of makam. The ratio of external debt to GDP at the end of December 2011 was 45 percent, a reduction of 2.5 percentage points from the ratio at the end of September. The net external debt The surplus of assets over liabilities abroad in debt instruments alone contracted by about $1.5 billion in the fourth quarter of 2011, and reached $57 billion (i.e., a negative net foreign debt). The balance of short-term debt assets was $117 billion at the end of 2011, a coverage ratio of 2.4 of short term debt. Figure 4: Net* External Debt $ billion, net lending to abroad (-) 20 10 0 -10 -20 -30 -40 -50 -60 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 Q 08 2 20 Q 09 3 20 Q 09 4 20 Q 09 1 20 Q 10 2 20 Q 10 3 20 Q 10 4 20 Q 10 1 20 Q 11 2 20 Q 11 3 20 Q 11 4 20 11 -70 *External debt minus assets abroad in debt instruments (i.e., excluding equity). For the complete data file, click here: http://www.bankisrael.gov.il/deptdata/pik_mth/pikmth_e.htm 6