The resurgence of the Palestinian

intifada

does not warrant a downgrade in Israel's credit rating, says investment bank

Salomon Smith Barney

.

SSB left Israel's sovereign credit profile unchanged at Mid Single A.

In contrast, the

Fitch

international rating agency on Monday placed Israel's long-term foreign currency rating of an A minus on a Rating Watch Negative, based on escalating political unrest in the country.

SSB analysts Stephen Taran and Christopher Kelly explain that the

intifada

has no direct bearing on Israel's financial situation, though it did hurt the country's tourism and construction sectors, which constitute only a fragment of Israel's gross national product.

The analysts concur that the

intifada

affected Israel's level of private consumption, albeit indirectly.

But they do not feel that the unrest will escalate into a regional crisis, primarily as Jordan and Egypt wish to maintain the peace.

SSB believes the global technology market has a more substantial influence on the growth of the Israeli market, and that it will be the catalyst to Israel's financial recovery.

The analysts point to the role of the hi-tech industry in the growth of the Israeli market, particularly in 2000, during which it was responsible for 2% out of the 5.9% of the country's general growth.

They also say that the market's strength in face of the

intifada

almost calls for an upgrade of the country's credit rating to a Double A, a rating usually given to Western European countries.

In its general statement, SSB emphasizes the prevailing uncertainty of both the political situation in Israel, and of the global and U.S. markets. The bank recommends prudence on all financial predictions in such an environment.

The bank concludes by praising the strength of the Israeli market under such harsh circumstances. The local market's resilience is apparent through the stability of the shekel, the relatively low inflation rate, and the prospering of exports in the year 2000 thanks to the hi-tech industry, they say.

The analysts believe that Israel's rate of inflation in 2001 will be lower than the forecast 2.5% to 3.5%, just as in 2002 it will be lower than the prevailing forecasts of 2% and 3%.