Remarks by the Deputy Governor of the Bank of Israel at the meeting of the Special Committee to Supervise the Wealth Fund

 The slide presentation presented during the meeting (in Hebrew) 

Bank of Israel Deputy Governor Andrew Abir participated today in a discussion of the Knesset’s special committee to supervise the Fund for the Administration of State Revenues from the Petroleum Profits Levy.  The discussion dealt with the Bank of Israel’s preparations for establishing Israel’s sovereign wealth fund—the Citizens of Israel Fund.  The slide presentation presented during the meeting (in Hebrew) is attached.  The following are the main points made by the Deputy Governor during his review:

 

·         According to the law, the investment policy for the Fund’s money will be set by the Fund’s institutions—the Council and the Investment Committee—and the Bank of Israel will manage the funds in accordance with the investment guidelines that will be set out.  For this purpose, the Bank of Israel will establish a division to manage the Fund’s money.  The head of the division will be appointed by the Council at the suggestion of the Governor.  The division’s head and staff shall be employees of the Bank of Israel.

·         The Bank of Israel is prepared for the establishment of the infrastructure under its control: studying the investment policies of other sovereign wealth funds around the world, learning the IMF’s principles for managing sovereign wealth funds, meetings with relevant people for investing the Fund’s assets, adapting system within the Bank of Israel, preparing for the opening of the Fund’s accounts abroad, and so forth.

·         Two of the conditions for starting investment have not yet been fulfilled:

1.      According to reports by the Israel Tax Authority, revenue from the royalties on the gas companies’ profits have not yet reached NIS 1 billion, the level set out in the law for the start of investment.

2.      The Fund’s institutions as set out in the law—the Fund’s Council and Investment Committee—have not yet been established.

·         The establishment of the Fund’s institutions is a condition for beginning investment, since it is they who will set out the investment policy for the Fund’s money.  The law does not grant powers to the Bank of Israel to invest the Fund’s money without an investment policy being set out by the Fund’s institutions.

·         The establishment of a search committee is a condition for establishing the Fund’s institutions.  Aside from the Minister of Finance and representatives of his ministry, the Prime Minister’s Office and the Bank of Israel, the Fund’s institutions will also include representatives of the public.  The search committee, whose chairman will be appointed by the Minister of Justice, will recommend candidates from among the public for the Fund’s institutions.  According to its recommendations, the Minister of Finance and the Bank of Israel Governor will appoint the three representatives of the public to the Fund’s institutions.

·         There is currently no search committee, for a number of reasons:

1.      About two years ago, a search committee was established, chaired by Judge Gal, and it began operating.  However, it was disbanded before the first round of elections for the 23rd Knesset, due to the resignation of the Committee’s chairman.

2.      The three rounds of elections delayed the establishment of a new search committee.

 

It is worth noting that the search committee already discussed a number of candidacies that were submitted to it, but in view of Judge Gal’s resignation, its work was frozen.

 

·         The Bank of Israel cannot move forward with the establishment of the legal and business infrastructure for investing the Fund’s money before the establishment of the Fund’s institutions.

·         The legal infrastructure includes opening a bank account for the Fund at the Bank of Israel, agreements on behalf of the Fund with the relevant parties who will be involved in managing the Fund’s money, a legal opinion regarding taxation, and more.