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2013.04.1504:13:54UTC+00Kandel stated, Israel gas fund law displays 'Dutch Disease' awareness

The establishment of an Israeli sovereign wealth fund for revenue from natural-gas discoveries will aid the government administer the currency-market assumptions, a top adviser to the prime minister stated.

A draft law making the fund was given a green light in principle today by the Cabinet, voiced out by Eugene Kandel, leader of the National Economic Council. While the fund will probably enjoy income only in 2016 or 2017, the government is rushing to prepare the draft for its operation now, he said.

Prospects for a natural-gas boom from fields discovered off Israel’s Mediterranean coast have helped in reinforcing the shekel by 3 percent this year, making it the fourth-best performer after the Mexican peso, the Brazilian real and the New Zealand dollar among 31 major currencies tracked by Bloomberg. Bank of Israel Governor Stanley Fischer bought foreign currency to weaken the shekel last week, acting for the first time since July 2011.

“The reason we are doing it now is because we want to manage the expectations of various currency markets, to show that we understand what ‘Dutch Disease’ is and we are going to take care of its consequences,” Kandel said on a conference call with reporters today.

The term “Dutch disease” was coined by the Economist magazine to describe a surge in income from new natural-gas fields in the Netherlands during the 1960s that triggered a currency gain and eroded earnings for the country’s other exporters. The term has since been applied to similar situations from Venezuela to Russia to describe how natural-resource discoveries can hurt industry.

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