TEL-AVIV - Israel so far has been spared the devastating effects of the global financial crisis. It is obvious, however, that like many other countries, Israel cannot remain totally unscathed.
Due to the wise and cautious behaviour of the president of the Bank of Israel, Prof. Stanley Fisher, Israel has had so far little direct exposure to the contagion that has wiped out trillions of dollars worth of wealth in recent weeks.
Fisher, a former vice-president of the International Monetary Fund, cautioned Israeli banks against investing in the radioactive debt instruments that have poisoned the markets of the world's most advanced economies.
This was possible, because unlike U.S. banks, Israeli banks are more regulated and more controlled by Israel's central bank.
Furthermore, in an effort to prevent a run on the banks, both Fisher and Finance Minister Roni Bar-On assured Israelis that their deposits are secured by the government and, hence, they have no reason to panic.
Nevertheless, what remains troubling are the corporate bonds, issuednby the large Israeli corporations, that borrowed money at very high rates of interest. These corporations are now finding themselves terribly squeezed and are unable to borrow more money to finance their activities.
One of these Israeli tycoons, Yitzhak Tshuva, owns among other things the prestigious New York Plaza hotel and with another Israeli partner, Nochi Dankner, undertook to build bigger Plaza Hotel in Las Vegas.
Because of the credit squeeze, both Tshuva and Dankner were asked by their American creditors to advance immediately $150 million.
Unable to meet this demand, Tshuva was forced on Sunday to put his privately-owned insurance company on the market at a price much lower than he originally paid.
Other so-called "big Israeli cats" are facing similar credit problems and are finding it difficult to redeem their investments in the U.S., Russia, Western and Eastern Europe.
Because of this situation, most Israei economists fear that the longer the crisis lasts, the more likely that Israel will face an economic slowdow, which could result in an increased unemployment.
One unwelcome result is already being felt in Israel. American Jewish donors are unable to meet their commitments. As a result, universities, hospitals and charitable institutions fear that they will have to scale down their activities and even fire some of their staff.
Among the Middle East countries, the most affected by the crisis are the oil-rich Persian Gulf states. Because of rising oil prices, these countries accumulated billions of dollars that they have invested in various American projects.
Because of their losses, these countries are scaling down their activities in Lebanon and are chanelling their money back home. This had an immediate effect on the Lebanese stock market and stocks of real estate in Beirut dropped sharply.
Yet, liquidity in Lebanese banks remains sound and there appears no immediate danger of their collapse.
The same goes for Jordan. Other countries, like Egypt and Syria, are so poor that they are not seriously affected by the crisis. which caught Israel in the worst political crisis in its history.
Although forced to resign in the face of corruption scandals, Ehud Olmert continues to function as an interim prime minister until a new government is formed.
His successor in the chairmanship of Kadima Party, Foreign Minister Tzipi Livni, is encountering difficulties with her potential coalition partners.
While Labour appears inclined to join Livni's government, the ultra-orthodox Sephardi party, Shas, insists on additional funding for the poor Jewish and Arab citizens.
Addressing the Kadima central committee on Sunday, Livni sounded quite alarmed. She told her potential political partners: "In deciding whether or not to join my government, I urge you to put the national interest first, and then your partiy's and your personal ambitions."
This has not been the case in Israel's history. Will it change now? Let's wait and see.
Samuel Segev is the Winnipeg Free Press Middle East correspondent. He is based in Tel Aviv.
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