Israel warns public on bitcoin risks, mulls regulation


Israel said on Wednesday it was considering regulation of bitcoin and warned citizens that using such decentralised virtual currencies was risky.

As a crypto-currency, bitcoin is passed between two parties digitally and can be traded on exchanges for real-world currencies. Its value fluctuates according to user demand but it is not backed by any government or central bank.

Supporters of bitcoin are drawn to its decentralised platform and say it is here to stay. Detractors call it a bubble and expect it to be forgotten in a year or two.

However, it has proved increasingly popular and governments and regulators around the world have been searching for the best way to respond.

Israel, home to pioneering firms in hi-tech fields such as cryptography, has emerged as a bitcoin hotspot, prompting central bank governor Karnit Flug to convene a meeting this week with other regulators, including those for capital markets, taxes, securities and money laundering and terror financing.

“It was agreed to continue to examine various perspectives related to the use of, and trade in, virtual currencies,” the authorities said in a joint statement on Wednesday.

“These perspectives include possible macro effects, their legal standing, their regulation, money laundering and terror financing risks, taxation and consumer protection.”

They said the Israeli public should be aware that bitcoin is unsupervised, is not legal tender and presents fertile ground for fraudulent activities. At the same time, such transactions are anonymous and often hard to trace, they added.

CRIMINAL ACTIVITY

“This anonymity is liable to be exploited for criminal activity, including money laundering, financing illegal activities and financing terrorism,” the statement said.

“Law enforcement authorities are therefore likely to close trading platforms in virtual currencies which are used for illegitimate activities, by preventing access or use of customers' capital, which would likely be held by those platforms,” the statement added.

Other governments have also issued warnings on the use of bitcoin and New York's financial regulator revealed plans this month to govern virtual currency firms in the state in order to protect consumers and combat money laundering.

At least two dozen Israeli startups have popped up in the past year with a view to creating tools that will allow bitcoin to be used in almost any kind of transaction – from buying shoes to issuing company stock.

In recent weeks, bitcoin was hit by attacks from unknown computer hackers that led to problems at two exchanges. They had to temporarily halt withdrawals by customers who stored bitcoins in digital wallets provided by the exchanges.

This week, a bitcoin is worth about $635, down from around the $1,000 mark in late 2013. However, it was worth only about $150 as recently as last September.

Israel’s budget deficit soars


Israel’s budget deficit for 2012 was more than double the government target, coming in at 4.2 percent of Gross Domestic Product (GDP). In addition, debt is 74 percent of GDP, making economic growth in Israel difficult.

“I think the average Israeli should be very concerned,” Professor Omer Moav, an economist at the University of Warwick in London and Hebrew University, told The Media Line. “The deficit is about $10 billion, which means more than $5,000 per Israeli household. We will have to pay it back – we, our children and our grandchildren.”

The announcement of the deficit came just over a week before Israel’s national election and quickly became a campaign issue.

“Over and over again Netanyahu sets deficit targets that he is unable to meet,” sniped Labor party leader Shelly Yacimovich, who hopes to lead her party to the number two slot after Netanyahu. “In the meantime he is digging a deep hole that he plans to fill with the decreasing funds of the poor and middle class.”

Moav says that Israel’s cost of maintaining its debt is relatively high because Israel pays higher interest rates.

“Israel is a risk economy,” he said. “The political risks and security risks translate into higher interest rates.”

Israel also spends an estimated 6.5 percent of GDP on defense, one of the highest percentages in the Western world. Combine that with the fact that large sectors of Israel’s population – the ultra-Orthodox and the Arab citizens of Israel – have significantly lower employment rates. Those who do work often have low salaries and do not pay taxes, meaning that those who do pay taxes pay more.

Economists here say Israel must cut its spending and increase its tax collection to pare down the debt burden. They say that the Israeli economy is not yet in crisis but it is moving in that direction.

“We are losing our flexibility,” Eyal Kimhi, the Deputy Director of the Taub Center for Social Policy Studies in Israel and a professor at Hebrew University, told the Media Line. “Unemployment here is pretty good, and the economy is still growing although slowly. But Israel will have to increase spending to counter the slowdown and then the deficit will increase even more.”

As that happens, Kimhi says, Israel will find it harder to raise the credit to cover the deficit, and the country will have to spend even more on interest payments.

The 2013 budget will be the first item on the new government’s table after the elections. Current Prime Minister Benjamin Netanyahu is expected to form the next government with a series of coalition partners. The problem, many say, is that each partner comes with its own set of political and economic demands. Perhaps for this reason Netanyahu may prefer a coalition with centrist parties, rather than the ultra-Orthodox, who make financial demands that could increase the deficit even further.

Iranian police clash with protesters over currency plunge


Riot police clashed with demonstrators and arrested money changers in Tehran on Wednesday in disturbances over the collapse of the Iranian currency, which has lost 40 percent of its value against the dollar in a week, witnesses said.

Police fired tear gas to disperse the demonstrators, angered by the plunge in the value of the rial. Protesters denounced President Mahmoud Ahmadinejad as a “traitor” whose policies had fuelled the crisis.

In a clampdown on the unofficial foreign currency market, a number of traders selling dollars were arrested after authorities ordered security forces to take action against those they see as speculators.

The rial has hit record lows against the U.S. dollar almost daily as Western economic sanctions imposed over Iran's disputed nuclear programme have cut Iran's export earnings from oil, undermining the central bank's ability to support the currency.

Panicking Iranians have scrambled to buy hard currency, pushing down the rial whose increasing weakness is hurting living standards and threatening jobs.

“Everyone wants to buy dollars and it's clear there's a bit of a bank run,” said a Western diplomat based in Tehran.

“Ahmadinejad's announcement of using police against exchangers and speculators didn't help at all. Now people are even more worried.”

The protests are seen as posing a threat to Ahmadinejad rather than the government, which is expected to put a stop to the foreign exchange black market, pump in funds to stabilise the currency and prevent the protests from spreading.

Tehran's main bazaar, whose merchants played a major role in Iran's revolution in 1979, was closed on Wednesday. A shopkeeper who sells household goods told Reuters that currency chaos was preventing merchants from quoting accurate prices.

A computer dealer said he had halted sales because of the volatility in the currency market. “The same product can change price within an hour,” he said by telephone.

The protests centred around the bazaar and spread, according to the opposition website Kaleme, to Imam Khomeini Square and Ferdowsi Avenue — scene of bloody protests against Ahmadinejad's re-election in 2009.

Protesters shouted slogans like “Mahmoud the traitor – you've ruined the country” and “Don't fear, don't fear – we are all together,” the website said.

SECURITY FORCES

The semi-official Mehr news agency said the largest gatherings were around the currency-trading centres of Ferdowsi Avenue, the Istanbul intersection, and Imam Khomeini Square and that security forces had been deployed to disperse the protests.

Iranian authorities currently do not allow Reuters to report from inside the country.  The national currency dived to a record low on Tuesday to 37,500 to the U.S. dollar in the free market, from about 34,200 at the close of business on Monday, foreign exchange traders in Tehran said. On Monday last week, it traded at around 24,600.

Ahmadinejad on Tuesday blamed the crisis on the U.S.-led economic sanctions on Iran and insisted the country could ride out the crisis. He said security forces should act against 22 “ringleaders” in the currency market.

Iran's Supreme Leader Ayatollah Ali Khamenei struck a defiant note in a speech on Wednesday.

“The Iranian nation has never submitted to pressures and never will, and this is why the enemy is angry,” he said.

Mehrdad Emadi, an Iranian-born economic adviser to the European Union, said the slide in the rial had prompted many Iranians to try to limit their losses by buying dollars.

“The rush out of the rial shows that everyone wants to sell. But clearly it is going to make the life of ordinary Iranians very painful and difficult,” he said.

The rial's slide suggested the Western sanctions were having a serious impact. Many businessmen and ordinary citizens say the government is at least partly to blame for the currency crisis, and Ahmadinejad has been criticised by enemies in parliament.

The rial's losses accelerated in the past week after the government launched an “exchange centre” to supply dollars to importers of basic goods; businessmen say the centre failed to meet demand for dollars.

Websites providing rates for the rial stopped updating on Tuesday, and Dubai money changers said they were not selling it because they had lost contact with their Tehran counterparts.

Egypt unrest may hasten currency crisis


Violent unrest in Egypt threatens to accelerate the country’s slide toward a currency crisis, forcing a sharp depreciation of the Egyptian pound in coming months and conceivably prompting Cairo to impose capital controls.

Even before this month’s clashes between government forces and protestors in Cairo, which have killed at least 33 people since Saturday, Egypt was heading toward monetary turmoil as the central bank battled to keep the pound stable by running down its foreign exchange reserves.

The recent violence, which calls into question whether Egypt can smoothly hold parliamentary elections beginning next week, is likely to increase pressure on the reserves and may bring a full-blown crisis forward to the next several months from the late-2012 tipping point previously predicted by some analysts.

“Even in advance of recent events we were very concerned about the balance of payments and the burn-through in reserves,” said Farouk Soussa, Middle East chief economist at Citigroup.

“The violence and political noise is going to erode whatever confidence was left in the Egyptian economy, and may result in the current atmosphere in an acceleration of capital outflows.”

RESERVES

Egypt’s net foreign reserves have tumbled from around $36 billion at the start of the year to $22.1 billion in October, as the violence and political uncertainty surrounding the ouster as president of Hosni Mubarak caused an exodus of foreign investors and tourists. Reserves sank $1.93 billion last month, the biggest drop since April, central bank data show.

By supplying foreign currency to the market, the central bank has so far managed to preserve the pound’s buying power and curb pressure for inflation in the face of this capital flight. It has kept the pound remarkably stable in a range of roughly 5.92-5.99 against the dollar since Mubarak’s overthrow.

But pressure on the pound is clearly growing as the market speculates about when the central bank may run out of money to maintain its defense; the currency edged down last week to its lowest level in nearly seven years.

Raza Agha, senior Middle East and North Africa economist at RBS, estimates the reserves are large enough to pay for about 4-1/2 months’ worth of Egypt’s imports. But liquid reserves—currencies, deposits and securities that can be mobilized quickly to defend the pound—are about $16.1 billion or 3.2 months of imports, he calculates.

“Egyptian reserves are still not at the panic-inducing levels, but they are extremely vulnerable to capital flight,” Agha wrote in a report last week.

Some traders think the market could panic, with expectations for currency depreciation causing bigger fund outflows that overwhelm the central bank, if liquid reserves fall near two months’ import cover.

If the unrest causes the decline in reserves to accelerate from October’s rate, as the violence hurts tourism revenues further and prompts foreign investors to sell their remaining holdings of Egyptian Treasury bills, crunch time could be reached in three months or so.

Protesters walk past graffiti reading “Leave Field Marshal”, referring to Hussein Tantawi, head of the ruling military council, during clashes with riot police along a road which leads to the Interior Ministry, near Tahrir Square in Cairo on Nov. 21. Photo by REUTERS/Amr Abdallah Dalsh

The forward market, in which banks hedge against future currency moves, clearly fears this point may be reached next year. Prices there imply an exchange rate of 6.15 in three months’ time and 6.62 in a year.

The stock market also reflects the darkening mood. The main index, which is down 46 percent this year, rebounded 17 percent in October but in the last two weeks has given up almost all those gains.

AID

International aid for Egypt could buy it valuable time and, conceivably, keep it afloat while the elections proceed and political stability returns.

Egypt turned down the offer of a $3.2 billion financing facility from the International Monetary Fund this summer, partly, officials indicated privately, because of national pride. The then finance minister said Egypt’s ruling military did not want to build up debts.

The inexorable decline of the reserves has forced a rethink, and Finance Minister Hazem el-Beblawi said this week that Egypt would formally ask the IMF to start negotiations on a package similar to the one it previously rejected. The IMF has signaled it will not put onerous conditions on the loans.

The wealthy governments of the Gulf and the international community in general have strong geopolitical reasons to try to keep Egypt stable; Cairo has received in-principle offers of aid totaling well over $10 billion from Qatar, Saudi Arabia, the United Arab Emirates and other sources.

But actual aid flows have been slow to arrive partly, analysts speculate, because of political tensions between governments in Egypt and the Gulf. Cairo has so far received $1 billion of budget support from Saudi Arabia and Qatar; the UAE said last month it planned to provide $3 billion but was still discussing the mechanism to deliver it.

Meanwhile, the euro zone debt crisis and a global economic slowdown may reduce the ability of the IMF and Western countries to help Cairo. Bloodshed in Egypt, or any resulting delay in its election timetable, could make it politically difficult for the West to aid the Egyptian government.

Angus Blair, head of research at Middle Eastern investment bank Beltone Financial in Cairo, said there were some positive factors for Egypt: Suez Canal revenues, tourism numbers and remittances from its workers abroad had held up fairly well in the circumstances.

But the country is threatened on several fronts, including high food price inflation, its budget deficit and its trade and current account deficits, he said.

“It’s quite difficult for Egypt to have all of these issues addressed at the same time because it’s in a global environment that’s less conducive to help—not because the world doesn’t want to help Egypt, but because there are so many other global issues to deal with at the moment,” Blair said.

Any sharp depreciation of the Egyptian pound could fuel inflation—one of the factors which sparked the unrest that toppled Mubarak. Soussa said the central bank therefore appeared determined to defend the currency at least through January, when elections for the lower house of parliament are due to end.

If pressure on the pound continues to increase, authorities may impose capital controls, he said, though officials have denied any intention to do so. If that does not work, Egypt may be forced to let the pound fall; Citigroup thinks the pound may depreciate between 20 and 25 percent in 2012.

With additional reporting by Nadia Saleem in Dubai; editing by Anna Willard

Write ‘Free Palestine’ on currency campaign starts


A new campaign to peacefully promote an independent Palestinian state calls on people to write “Free Palestine” on Israeli currency.

The campaign was launched on Facebook over the weekend and has gained attention worldwide, according to reports, which say it is likely that “Free Palestine” will be written on other countries’ currencies as well.

Israeli shekels are used in the West Bank and Gaza.

The Facebook page “Write on coin Free Palestine Camp” was set up March 5 by two men from Ramallah, according to the page.

“The idea of ‘Write Free Palestine on Israeli paper money Campaign’ stems from our firm belief in nonviolent national resistance,” their page says. “Through this campaign, we express our resistance to the Israeli occupation and its unjust policies towards Palestinians.”

Later it says, “This is a simple, creative, nonviolent, innovative way to resist. Now you can make an actual change by simply writing ‘Free Palestine’ on Israeli paper money.”

The Facebook page had 933 likes as of Monday. At least 50 other Facebook pages are dedicated to the slogan “Free Palestine.”

Meanwhile, the Palestinian Banking Society warned Sunday that Israeli banks could refuse the bills with a slogan written on them, and therefore Palestinian banks also would not accept the notes, the Palestinian Ma’an news agency reported.

“With all appreciation due to the good intentions of the organizers of the initiative, the society urges all citizens to understand the negative impact the act could have on the Palestinian economy,” a statement issued Sunday from the Banking Society reportedly said, calling the plan a “costly protest.”

Begin, Rabin to appear on new Israeli bills


The images of the late Israeli Prime Ministers Menachem Begin and Yitzhak Rabin will appear on new Israeli currency.

The late writer S.Y. Agnon and poet Rachel Bluwstein Sela, who was known simply as Rachel, also have been chosen for the honor.

The Bank of Israel announced the new series of banknotes, and its honoring of the political and cultural history of Israel, on Sunday.

Begin and Rabin were chosen for signing peace treaties with Israel’s neighbors—Begin with Egypt and Rabin with Jordan and an interim agreement with the Palestinians—Bank of Israel Governor Stanley Fischer said.

The image choices require Cabinet approval.

The new currency, in the form of 20, 50, 100 and 200 shekel bills, is scheduled to be issued in 2012 and will include advanced anti-forgery methods.

As U.S. dollar plummets, Israelis rediscover the shekel


As the U.S. dollar continues its spectacular nose dive — it has lost 20 percent of its value against the shekel in the past year — Israelis have rediscovered the bright greens, reds and purples of their own currency.

No longer the subject of derision or victim of hyperinflation, the shekel is now among the strongest currencies in the world. For the first time in years, businesses and real estate agencies that once dealt only in dollars are now instead setting their rates to the shekel.

Overall, the transition to a shekel economy is good news for Israel, said Jospeh Zeira, a professor of economics at Jerusalem’s Hebrew University. Zeira said it reflects a strong economy that is attracting investment from abroad.

“It means that we are less dollarized,” he said. “It shows the public has a lot of confidence in our currency.”

But the ever-plunging U.S. dollar is a mixed bag for Israelis.

While the strong shekel has meant more buying power for Israeli consumers, American immigrants with salaries or pensions in dollars have seen the value of their monthly checks shrink dramatically, Israel’s export industry stands to lose greatly and even the Israeli military is grappling with the reduced value of the U.S. aid dollars it receives.

Over the past two years, the dollar has dropped against the shekel by about 25 percent — 13 percent in the past six months. The shekel currently stands at 3.60 against the dollar.

An e-mail joke making the rounds in Israel shows a picture of the U.S. dollar with this subject line: “The new 3 shekel note.”

In Israel’s export industry, businessmen say the industry stands to lose $2 billion to $3 billion because of the plummeting dollar. Israel has a very small domestic market, and exports comprise nearly half of the country’s gross domestic product.

In an apparent effort to soften the effects of the falling dollar, the Bank of Israel increased interest rates by a significant half-percent last week.

American immigrants who retired to Israel and are living off their dollar savings and pensions are surprised to find themselves in unexpected financial circumstances. Some say they are curtailing their travel plans and avoiding restaurants.

Simmy Friedman and his wife, Dorothy, recent retirees from Florida, made aliyah in September 2006. They say they have not changed their spending habits but do feel the impact of the new situation.

“When we came the shekel was 4.34 [to the dollar], and that is what we predicated our living expenses on,” Friedman said. “We are extremely happy here and would not have changed our minds” about coming, “but it definitely impinges on our budget.”

Describing the process of converting his monthly Social Security check for a dwindling amount of money, he said, “It’s a serious, serious problem.”

High-tech companies that raise money and set their budgets in dollars also are feeling the crunch.

“Most of them are dollar-based companies — everything they do is abroad except for their research and development, which is done by a workforce here paid in shekels,” said Aaron Katsman, the managing director of Israelnewsletter.com, a financial newsletter that focuses on Israeli companies that trade in the United States. “Their expenses have risen dramatically because their labor costs have risen dramatically as they convert their funds to shekels.

“We see in their earnings reports and every quarter that people are complaining,” he said.

New start-up companies in particular are hurting because suddenly their projected costs are askew, Katsman said, making it difficult to plan for the future and raise money.

One recent American immigrant who kept his U.S. job in the high-tech industry when he moved to Israel said he is especially feeling the weakness of the dollar now that he is buying a home here. But the immigrant, who asked not to be named, said he is not looking to switch jobs just because of the dollar’s weakness.

“Israel-based jobs still don’t come close to the salaries of an American job at this point,” he said. “If they did, no immigrants would still be working in America.”

Shlomo Namdar-Kaufman, who owns and runs an industrial design firm in Tel Aviv, started charging clients in shekels for the first time about two months ago.

“People are going over to shekels because they see it’s more stable,” he said. “People are saying, ‘I pay salaries, taxes and materials in shekels. It’s time to stop speculating on the dollar.'”

Imported goods into Israel are now cheaper, and for the consumer that means savings, including cheaper big-ticket electronic items like TV sets and washing machines.

People whose rent has been linked to the dollar find themselves paying less rent every month. Landlords are responding by setting new leases in shekels.

Prices of apartments and houses for sale still are mostly set in dollars, but they have risen to match the fall in the dollar’s value.

High-ranking army officers have expressed concerns that the defense budget, and therefore Israel’s preparedness for war, might be harmed because of the dollar’s drop.

One senior officer told the Jerusalem Post the army could lose $500 million from its current budget because of the reduced value of the dollar combined with a rise of fuel prices. He said the army has delayed converting U.S. aid money into shekels because of the low rate of exchange.

Sever Plocker, writing in Israel’s daily Yediot Achronot, told Israelis to welcome the plummeting dollar instead of wringing their hands over what it all means.

“These fluctuations are a blessing. They liberate the Israeli public from its strange addiction to the dollar,” he wrote. “Our hair will turn white if we attempt to predict what will happen to the dollar tomorrow or two days from now. Forget about the dollar, Israelis. Stick to the shekel.”

Zeira, the economist, said this is the right response.

“My only advice is to move to the shekel,” he said. “It’s a better currency and it’s ours.”

Falling dollar forces groups to adjust overseas spending


While economists fret over how the falling U.S. dollar will affect global markets, Jewish charities that rely heavily on U.S. fundraising to support programs outside the United States are facing serious budget crunches.

The dollar has been on a slow decline against the euro since January 2003, when the two currencies were basically even.

Last Friday marked an all-time low, as the dollar traded at $1.4572 against the euro — a decline of more than 11 percent since the start of the year.

The dollar also has fallen sharply against the shekel, to 3.93 shekels per dollar from 4.30 in January.

With the credit crisis, housing recession and high U.S. deficit having sent the dollar into a tailspin in 2007, Jewish community professionals in charge of overseas nonprofits are facing major problems paying for their programs.

The dollar’s weakness already has hit groups like the American Jewish Joint Distribution Committee (JDC) and the Jewish Agency for Israel, the two overseas arms of the North American Jewish federation system, particularly hard.

The JDC allocates some $360 million annually in 66 countries; 90 percent of the funding comes from U.S. donors. While the budget number has stayed the same since January, its value has declined significantly. That has made the $70 million the JDC spends in Europe every year 10 percent less effective in 2007.

“Ultimately we provide less service if the dollar doesn’t go as far,” said Eugene Phillips, the JDC’s chief financial officer. “People are getting hurt.”

The impact has been most severe in the former Soviet Union, Phillips said. The cost of home care for the elderly, for example, has jumped to $2.43 per hour from $1.42 per hour a year ago.

Other charities are facing similar problems.

George Ban, the executive vice president and CEO of the Ronald S. Lauder Foundation, which runs a network of Jewish schools in Eastern and Central Europe, said the shrinking dollar “creates a tension because you are a professional and you have to keep yourself within a budget frame.”

For Ban, this means that while a teacher’s salary of 500 euros cost him $500 in 2003, now he has to pay $700 per month for the same teacher, he said. That increase extends to every line item in his budget, from food to electricity to heat.

To cope with the loss of value, the foundation has cut all non-essential grants and reduced costs across the board. Camps Ban used to run out of high-end hotels are run now at cheaper facilities.

The American Jewish World Service (AJWS), which provides some $12 million in grant funding to grass-roots organizations in 36 countries, is considering adding funds via stop-gap grants to groups whose original grants — made in dollars — turned out to be insufficient to cover the costs of their programming, an AJWS spokesman said.

“In countries like India and Thailand, where the dollar has taken the biggest hit, it means that our partners have had to adjust how they are budgeting their resources in areas like staffing, project supplies and physical overhead,” Joshua Berkman said.

In India, AJWS costs rose to $1.6 million this year from $1.2 million in 2006. In Thailand, they rose to $600,000 from $320,000.

The Jewish Agency, the quasi-governmental agency that runs welfare and education programs in Israel and abroad, is similarly at risk because 70 percent of its income is received in dollars while 80 percent of its expenses are paid out in shekels, chief financial officer Yaron Neudorfer said.

This poses extreme risk for the organization, since the dollar’s decline against the shekel is continuing unabated.

Currency value changes have opened up an $11 million budget gap, agency officials said.

Both the Jewish Agency and the JDC say they will need more money from the United Jewish Communities (UJC) — the federation umbrella group that provides the two groups with the lion’s share of their budgets — to close the gap.

Howard Rieger, the UJC’s president and CEO, said he does not yet know how the UJC will respond to this need. He pointed out that in other years the dollar has gone up, generating savings.

For the short term, the JDC and the Jewish Agency, like other Jewish nonprofits active overseas, are trying to tackle the problem on their own.

The JDC has decided to keep a balanced budget, pressing their local service agencies to stretch their funds as far as possible until it can raise more money.

The Jewish Agency has been able to soften the blow of the declining dollar by hedging its financial exposure through currency insurance. After the shekel-dollar exchange rate became extremely volatile in 2006, the agency bought an option from an Israeli bank that allowed it to lock in a specific shekel-dollar rate, netting the agency some $1.5 million in savings for ’06.

In 2007, the Jewish Agency again bought an option, locking in a 4.10 shekel-dollar exchange rate on $150 million.

Neudorfer says the Jewish Agency expects that move to save $2.2 million in ’07, offsetting approximately 20 percent of the organization’s losses stemming from the falling dollar. The exact amount will depend on where the exchange rate stands when the agency exercises its right to buy the shekels at the 4.10 exchange rate, which it has until February to do.

“We don’t have to worry until February 2008,” Neudorfer said.

Then, he said, the agency will have to figure out how to stem the budget shortfalls for 2008.