Geert Bekaert and Campbell R. Harvey's


Chronology of Economic, Political and Financial Events in Emerging Markets




Major Political and Economic Events


Banking crises (1977-1984): virtually the entire banking sector was affected, representing 60% of stock market capitalization. Stock exchange closed for 18 days; bank share prices fell over 40%.a2 1983-1984, the government nationalized the major banks.a1


The introduction of the Insider Trading Laws.a4


The minimum term for foreign exchange denominated interest-bearing time deposits was raised from three months to one year. Existing deposits were allowed to continue to bear interest until maturity.a3(first entry)


Authorization was restored for Israeli residents to effect payments by drawing on foreign commercial overdraft accounts.a3


The prohibition against making advance repayments on foreign loans received by Israeli citizens from companies abroad was relaxed to cover only those loans that were not a part of the overall credit ceilings. The maximum amount of foreign currency that a foreign resident could purchase before leaving Israeli was reduced from US$500 to US$100.a3


New deposits in PATAM accounts of less than 12 months' maturity could no longer be effected in sheqalim; withdrawals from existing PATAM accounts into sheqalim would continue to be permitted.a3


The right of foreign residents to acquire Israeli securities from Patach accounts was limited to the purchase of shares. An exempt person converting foreign currency with an authorized agent could reconvert into foreign currency only six months after the date of such conversion.a3


A levy of 15% was imposed on outward foreign investments, intended by the authorities as a means of closing a loophole that had enabled enterprises to avoid the tax on imported services by investing abroad, particularly in subsidiary companies.a3


Restrictions on investment were eased and restrictions on capital flows started to be eased. Mehrez and Kaufmann Liberalization date. a1


ADR effective date. (Company=TEVA PHARMACEUTICAL INDUSTRIES LTD, Exchange=NASDAQ)a11


The 3% levy on foreign exchange loans was abolished.a3


Certain controls on contracting of foreign loans by domestic entities engaged in export activities would be liberalized, effective January 15, 1989.a3


The minimum term on loans obtained by residents was reduced to 24 months from 30 months. The preferential export credit scheme was liberalized, whereby the exporter was no longer restricted to obtain financing arranged by Israeli banks, but was permitted to obtain financing for the export production period by Israeli banks. The interest rate under the scheme was changed to a range consisting of LIBOR plus 1% as the "base", plus a risk premium of 0-2%.a3


Residents who own trust funds were permitted to invest abroad up to 10% of their portfolio of financial assets.a3


A foreign resident's right to reconvert the proceeds of his investment was expanded to include investments in debentures issued by Israeli companies whose stocks are traded in the Tel Aviv Stock Exchange.a3


The first prosecution under the Insider Trading Laws.a4


Directed-credit system was abolished. a1


The max limit on the interest rate on direct credits from abroad was removed.a3


The limit on assets an emigrant is permitted to transfer abroad annually was raised from US$2,00 to US$4,000.a3


The limit on the minimum period of a direct loan from abroad was reduced from 12 months to 6 months.a3


Restrictions were relaxed on the convertibility of proceeds from sales of bonds and mutual funds originally purchased with foreign currency, nonresidents' eligibility to hold nonresident local currency deposits convertible at Israeli banks, and nonresidents' borrowing in local currency from banks in Israel against foreign currency collateral.a3


Subsidized interest rates on priority lending was phased out. Mehrez and Kaufmann's second Liberalization date. a1


First Israel Fund initiated. a12


All nonresident heirs were allowed to transfer inheritances abroad.a3


Nonresidents were allowed to deposit in nonresident accounts all incomes receive from Israeli securities and real estate even if these were purchased from sources other than nonresident accounts.a3


Provident funds were permitted to invest in approved and/or recognized foreign securities and undertake forward and other future transactions permitted to an individual resident, provided their total investments of this kind did not exceed 2% of their assets.a3


Israeli firms were permitted to invest in recognized foreign securities provided this constituted no more than 10% of their equity or 5% of their sales turnover, to establish or buy firms abroad and invest capital in them as an equity holder's loan or as a guarantee, and to purchase real estate abroad. Permits for investment abroad by Israeli firms are subject to the conditions determined by the Controller of Foreign Exchange subject to certain requirements.a3


A resident who has received a foreign security of any kind as a gift from a nonresident is allowed to retain it, provided it is placed in a custody deposit on his or her name with an authorized dealer bank. This has brought the regulations concerning securities received as a gift into line with those concerning securities received as a bequest.a3


The maximum amount a resident can transfer abroad as an alimony payment was increased (in accordance with the amount stipulated in the court's decision, or four times the amount permitted under the alimony legislation).a3


Uniform rules were set for the purchasing and selling of foreign securities traded abroad and on the Tel Aviv Securities Exchange (TASE). Foreign securities purchased with local currency are registered in the name of the authorized dealer and deposited in a custody deposit account in the name of the nonresident.a3


Individual residents were permitted to purchase a time-share unit abroad with a max limit of $15,000. Nonresidents were permitted to repurchase foreign currency that was transferred for investment purpose directly from abroad.a3


The definition of Israeli securities was expanded to include the redeemable shares of an Israeli company and the right or warrant that grants the right to purchase such shares. Thus, nonresidents were permitted to purchase such securities and deposit the income from them and the proceeds from their sale in a nonresident deposit account, provided they are bought with funds from a nonresident deposit. Direct investment abroad by foreign subsidiaries of Israeli companies was liberalized.a3


Emigrants were permitted to transfer abroad up to 20% of their assets. Residents were permitted to deposit in a resident foreign currency deposit account a loan in foreign currency received from a nonresident or from an authorized dealer bank, as well as the proceeds from selling foreign securities or income from them, even if the security was purchased with local currency.a3


Residents were permitted to purchase abroad any security for which a price is published by an international quoting agency according to the list determined by the Controller of Foreign Exchange, irrespective of the stock market on which the security is traded. They may also purchase a new foreign security, at offering, if that agency has made information about the offering available.a3


A foreign company registered in Israel was permitted to export profits accrued from its activities in Israel upon termination of these activities, subject to the conditions set forth by the Comptroller of Foreign Currency.a3


The IFCI Israel Index was launched as a stand-alone index, with calculation going back to the beginning of 1997. The government successfully sold holdings in Bank Leumi, the biggest offering to date on the TASE (Tel Aviv Stock Exchange).


A new finance minister was appointed. Sectarian violence broke out in Hebron and Jerusalem.


A global stock market selloff sparked the largest one-day drop in share prices since August 1994, spurring a 45-minute suspension of trading.


(Controls on capital and money market instruments) Residents were permitted to purchase abroad any security for which a price is published by an international quoting agency in accordance with the list determined by the Controller of Foreign Exchange. (Controls on liquidation of direct investments) A foreign company registered in Israel was permitted to export profits accrued from its activities in Israel upon termination of these activities, subject to the conditions set forth by the comptroller of Foreign Currency. (Controls on personal capital movements) Emigrants were permitted to transfer abroad up to 20% of their assets or $50,000, whichever is higher.a3


(Provisions specific to institutional investors) The limit on financial investment abroad by provident funds was raised to 5% from 2% of their assets and from 10% to 50% of their assets for mutual funds.a3


There was a crippling labor strike.


(Controls on capital and money market instruments) The limit on money market instruments purchased by the business sector abroad, on holdings of foreign securities and foreign currency abroad by Israeli companies, and on collective investment securities purchased by the business sector abroad were abolished. (Provisions specific to institutional investors) All restrictions on mutual fund investments in foreign securities were abolished. (Controls on derivatives and other instruments) The restrictions on purchase of derivatives by residents were abolished. (Controls on credit operations) The limitation for the resident business sector to grant credits to nonresidents in relation to nonresidents' holding equity in the domestic enterprise was abolished.a3


(Controls on derivatives and other instruments) Israeli residents were allowed to freely engage in selling foreign securities short; a nonresident may now sell Israeli securities short.a3


The central bank cut interest rate to the lowest level in years.


The unstable shekel fell more than 17% over the 12-month period.


(Controls on derivatives and other instruments) All activities and transactions in foreign currency between Israeli residents and nonresidents were permitted, except for a short list of restrictions on institutional investors and on some transactions in derivatives made with nonresidents.(Controls on direct investment) Resident individuals were allowed to invest abroad freely.a3


The central bank cut interest rate for the eighth time in the year.


The debate over the the Wye River Peace Accord cast a shadow over the markets. The Bank of Israel decide to raise lending rates to counter inflation.


The finance minister resigned and Prime Minister Netanyahu called for early elections.


The long-delayed 1999 budget was passed and the central bank cut the key interest rate by 50 basis points.


A positive IMF report forecasted an end to the recent economic recession.


(Controls on direct investment) The threshold for direct reporting to the Controller of Foreign Exchange of outward direct and portfolio investments made by corporations, as well as for offerings abroad by Israeli corporations, was raised to $5 million. Individuals and nonprofit organizations were required to report directly to the Controller of Foreign Exchange all outward direct and portfolio investments above a threshold of $0.5 million.a3


Prime Ministerial candidate Ehud Barak won the election. The new administration forecasted a shortfall in tax revenues for the year due to the economic slowdown.


Ehud Barak struggled to piece together a coalition government.


Israel reinstated peace talks with Palestine and Syria.


In the first quarter, a surge in tax revenue resulted in a fiscal surplus, and unemployment dropped slightly to 8.6%. Lower interest rates boosted GDP to 4.5%. Dr. David Klein was appointed as central bank governor. The peace talks with Syria stalled. S&P changed its outlook from stable to positive.


(Controls on direct investment) New immigrants and Israeli citizens returning to Israel after having resided abroad for 7 years or more were exempt from direct reporting for a three-year period.a3


The Tel Aviv Stock Exchange extended trading hours for equities and fixed income securities.


Israel pulled out from Lebanon and pursued peace talks with Syria.


The government sold 17.3% stake of Bank Hapoalim, the largest public offering on the Tel Aviv Stock Exchange.


Israeli high-technology company, an Israel-based Internet company, launched a successful IPO, attracting US$1.1 billion.


The shekel depreciated due to political instability and the reduction in the interest rate gap between the U.S. and Israel. New election loomed.


Talks with Syria were discontinued, following the death of President Hafez al-Assad.


The peace process broke down and the relations between Israelis and Palestinians worsened.


Prime Minister Ehud Barak resigned.


Ariel Sharon's landslide victory in the elections led to the formation of a national unity government, including both major and minor parties.


In the second quarter, Israel resumed military action in Lebanon after more than five years.


The Tel-Aviv Stock Exchange launched the Tel-Tech 15 Index, consisting of 15 of the largest and most actively traded technology shares. S&P affirmed the credit ratings for Israel.


Given Imaging, the Israeli medical products company, completed the first U.S. initial public offering since August of an Israeli company.


The stock exchange upgraded its contingency facilities for trading and clearing.


The Labor Party Central Committee voted almost unanimously in favour of staying in the national unity government


Prime Minister Ariel Sharon yesterday scrapped a top-level decision-making body compromising himself, the Defence Minister and Foreign Minister, replacing it with a body made up of political party leaders from the coalition


The Israeli army says it has killed at least 200 Palestinians in its sweeping 10-day offensive in the West Bank. b6


The Bank of Israel raised the key lending rate by +1.5% to +7.1% in its latest bid to contain surging inflation


VAT is increased to 18% on virtually all services and products sold in Israel (except fresh fruits and vegetables), including imports. b7


Parliament has approved a tax reform package that introduces capital gains tax at 25%.

Capital Gains Tax

15% tax to be levied on inflation-adjusted gains from the stock market. 2. 10% tax to be levied on nominal gains from nominal shekel securities. 3. Until 2006: 25% capital gains tax (the same as at present) on the purchase of foreign securities. 4. From 2006:15% capital gains tax on foreign securities. 5. Until 2006: 35% dividends tax (the same as at present) on foreign securities. 6. From 2006: 25% dividends tax on foreign securities.

Tax on Deposit Interest

1. 10% tax on interest for deposits in shekels. 2. 15% tax on interest for deposits in other currencies.

Tax Exemptions for Foreign Investors

1. 100% tax exemption for foreign investments in start-ups. 2. 100% tax exemption for foreign investment in Israeli venture capital funds (this already exists, but will be made permanent). b1


Prime Minister Ariel Sharon announced a halt to the entry of foreign workers until the end of 2003, in order to help alleviate rising pressures associated with unemployment.


Foreign investors are pulling out millions of dollars from foreign resident accounts amid concerns that funds will be liable to a tax rate of 10-15% under reforms that came into effect at the beginning of the year.


Prime Minister Ariel Sharon reached agreement with the secular Shinui party to join a coalition alongside the NRP, granting Sharon a slim, one-vote majority in the Knesset.


US pledges US$10bn aid package to Israel to help cushion deepening fiscal crisis and with the prospect of gloomier times ahead with the onset of war in Iraq.


The US lifted its objections to the sale of a Phalcon Airborne Warning and Control System to India, in a deal worth US$1bn that confirms Israel as one of the five biggest arms exporters in the world.


The Ministry for Trade, Industry and Employment has announced new measures seeking to address the rising number of illegal foreign workers, estimated 150,000 illegal workers alongside 100,000 legal workers. b1


Investigation opened into new corruption allegations linked to Israeli PM.


A Finance Ministry spokesman stated yesterday (10 September) that the government is proposing a zero tax regime for foreign investors investing sums of US$500m or more within the economy


The US announced that it is to deduct US$290m in loan guarantees from a current package of US$3bn outstanding to the Israeli authorities.


The Bank of Israel has cut interest rates by a further 0.4 of a percentage point, taking the key lending rate to an 18-month low of 4.8%.


Finance Minister Binyamin Netanyahu has announced a reduction of value added tax (VAT) and taxes on imported consumer durables. VAT will drop from 18% to 17%. Purchase taxes on particular consumer durables will be cut from 24% to 5% in the case of kitchen appliances and from 45% to 15% with reference to a variety of electronic equipment.


A new leftist party is being launched this week. Yahad, Hebrew for 'together', elected its first leader today in a party contest


Israel issues US $1bn bonds backed by US credit guarantees.


Israeli parliament passed the government's plan for tax cuts, gradually reducing company tax from 36% to 30% by 2007.


The International Court of Justice (ICJ) has ruled that Israel's separation barrier is illegal and sections of it must be torn down. The Israeli government has rejected the decision, arguing that 07/11 suicide bombing in Tel Aviv is further proof of the need for the barrier.b1


Regulations on Foreign Investors


Restrictions: Payments for the purchase and sale of securities must be made through an account in a local bank (the authorized dealer) in the foreign investor's name. Dividends and gains on investments made in foreign currency through an authorized dealer may be repatriated in foreign currency at prevailing exchange rates.

Taxation: 25% dividend tax rate (lower if investor's country has tax treaty with Israel) and no tax on capital gains.a5(first entry)


No change through 2001.a5


Restrictions: 1. Foreign investors can have 100% ownership of business except regulated sectors like banking, insurance, defense industries, and such state-owned interests as the national airline and the power monopoly. 2. No controls or restrictions on current transfers, repatriation of profits, and invisible transactions. 3. Israeli law requires adequate payment, with interest from day of expropriation until final payment, in cases of expropriation. b6, b7

Taxation: VAT increased to 18% effective June 15, 2002. b7


Restrictions: Foreign currency control is completely abolished. b7

Taxation: Capital gain tax is introduced at 25%. 100% tax exemption for foreign investments in start-ups. 10-15% tax on foreign resident accounts which were used as collateral for bank loans to Israeli companies owned by the investors.