[Peace-discuss] Illinois purchase of Israel Bonds

[David Green]

Posted by: "Clif Brown" clif9710 at earthlink.net   clif9710 
Mon May 30, 2011 5:00 pm (PDT) 
When I read that a group in Minnesota was contesting the state purchase 
of Israel bonds when foreign investments were specifically prohibited by 
state law, I began to wonder about the situation in Illinois.

I checked with my state representative and after many weeks of no 
response to my queries by email and voicemail, I went in person to the 
rep's office and made a specific request for information that resulted 
in the receipt of the PDF Illinois State Board of Investments, Annual 
Report for 2010 <http://www.state. il.us/srs/ PDFILES/ISBI2010 .pdf>, 
easily obtainable on the Net.

Within this document there is precisely one mention of Israel and it is 
from the listing of "Federal Agency and Other Governments" in the 
portfolio of investments on page 32.

Now here is what makes this particular investment interesting

In the list of over 170 entries of which it is one...

1) it is large, at $12 million it is one of the 12 largest investments 
in the list.
2) alone in the list, it is not top quality (AAA) as rated by Moody's 
but A1 (anything A or above is OK per Illinois investment policy). It is 
not rated by Standard and Poors
3) alone in the list, it has no entry for yield to maturity (maturity is 
in February 2013)
4) alone in the list, it is issued by a foreign government, every other 
member of the 170+ entry list is a US government or agency issue.

There are foreign investments by Illinois but they are in companies, not 
government securities.

My questions to the Illinois State Treasurer:

*> why is Israel the only foreign country whose government issues are 
chosen for purchase by Illinois? When only one entry out of over 170 
instruments is not domestic, this cannot be for international 
diversification. *

*> since the return from the Israel government investment is no better 
than most other purchases in the category, how does it serve the 
financial interest of Illinois to purchase it?
*
*> Illinois Treasurer Dan Rutherford has said "State of Israel bonds are 
a secure investment with an outstanding track record; they produce a 
strong rate of return and Israel has never defaulted on payments of 
principal or interest," yet this is true of many countries. Why is 
Israel's the only foreign government securities purchased?*

*> according to the Illinois State Treasurer's rules for investing 
<http://www.treasure r.il.gov/ about-us/ pdf/GRInvestment Policy20081224. pdf>, 
section 5(k) (page 5 of PDF) states: "Securities of a foreign government 
that are guaranteed by the full faith and credit of that government as 
to principal and interest and /rated A or higher by at least two of the 
standard rating services.../ " In the Illinois State Investment Board 
listing, the Israel bonds are rated only by Moody's, under the Standard 
and Poor's column is "N/A". Where is the second rating required by the 
investment policy?*

*> Most important of all - Israel violates international law in the 
occupied territories and acts against United States policy as well. 
Since there is no stipulation in the sale of Israel bonds as to how 
Israel will use the money, Illinois money can go toward building illegal 
settlements or subsidizing settlers in violation of the law. As a 
law-abiding Illinois citizen I object to my state government investing 
state funds that may be used without restriction for illegal purposes.*

Is anyone still awake and reading?

It boils down to only Israel's bonds being purchased, bonds with a yield 
(5%) that is average, not a standout as you would expect for an investor 
stepping outside domestic investments to choose a particularly good buy 
from a single foreign country. Since no other countries are represented 
in Illinois' portfolio, it appears to be a special investment made for a 
reason other than a good return to the people of Illinois. Since 
increasing the number of bidders for government debt will act to drive 
down the interest rate for that debt (meaning a cheaper loan for the 
debtor), Illinois, when joining with other states in creating a market 
for Israel bonds, drives down the cost for Israel. It would appear the 
purchase is being made specifically to benefit Israel, not Illinois.

Finally, there is no stipulation by Israel on how the money raised with 
Israel bond sales will be spent. Israel may freely use the money from 
Illinois to build settlements or subsidize settlers.

I will advise of the answers, if any, that I receive.

Clif Brown
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