"Without legislative changes, the nonnegotiable component of the state's debt will increase at the expense of the negotiable component," central bank governor David Klein warned at the Israel Democracy Institute's annual economics "Caesarea conference", taking place in Jerusalem this year.

Unless matters change, the state will be raising more and more money from pension funds through nonnegotiable debt, reducing the financing component directed at the capital market, he said.

Today, half the nation's debt is nonnegotiable. That trend is bad news for the capital market, and must be changed through legislation, the governor said.

The governor was speaking at a forum set up to examine ways to increase investment by pension funds in the capital market.

On that subject, former treasury director-general David Brodet noted, "There is no reason for the Israel Electric Corporation to raise money from overseas pension funds buying its bonds, and not from Israeli ones." Under current law, Israeli pension funds are prohibited from investing in such assets.

Brodet added that he believes pension funds should be freed to invest in two other low-risk areas: mortgages and infrastructures.

"Why should a project like the trans-Israel highway need to raise financing abroad," Brodet demanded, "if pension funds could allocate resources to (infrastructure), which is relatively low risk."

He added that the pension funds should be allowed to invest some part of their assets in venture capital, as is customary in the United States.