"The government will channel money from the budget and from outside of it to promote growth," said Prime Minister Ariel Sharon in his victory speech, revealing how eager he is to receive the U.S. loan guarantees - because the words, "outside of it," mean loan guarantees.
Sharon knows that our overall situation is terrible, that the economy is continuing to shrink, that revenues from taxes are falling, and that there is already a "hole" of NIS 6-10 billion in the budget. He also knows that his policies, assuming a narrow right-wing government is formed, will not lead to a political breakthrough and, therefore, the terror will not stop and the economic and social situation will continue to deteriorate.
Hence, the only solution for the economic problems, according to Sharon, is to increase the budget deficit - and to use the new billions for investment in infrastructure - in an effort to promote growth. And to finance the increase in the deficit, Sharon needs the loan guarantees.
Finance Minister Silvan Shalom thinks the same way. When he was interviewed on CNN a day before the elections, he said that when a country was suffering from terrorist attacks, it was impossible to reduce the deficit to 3 percent of GDP. In saying this, he was preparing the ground for the following ploy: a new program of cutbacks to the tune of NIS 6-10 billion, in the context of which he will propose increasing the deficit, exactly like the tricks he performed in 2002.
Moreover, the parties that are supposed to join the narrow right-wing government have yet to internalize the fact that the economic situation is grave. The business section of Haaretz published their economic views on election day, and it turns out that populism and lack of knowledge still reign.
Shas, United Torah Judaism, the National Religious Party, National Union, Yisrael b'Aliyah and One Nation all recommend increasing the budget deficit. Have they already managed to forget what happened to the economy when Silvan Shalom failed to maintain the size of the deficit in 2002? Have they forgotten the major crisis of June 2002, when the public realized that the treasury had no control over the deficit, dollars fled the country, the dollar exchange rate threatened to top NIS 5, the international credit companies warned that they would lower Israel's credit rating, prices rose, interest went sky high, and we found ourselves in a financial crisis?
It was, after all, this very crisis that prompted David Klein, the governor of the Bank of Israel, to raise interest rates to 9.1 percent (with all the damage to the business sector that the move entailed), while Silvan Shalom was forced to announce an additional cutback of NIS 8.7 billion in the budget, as well as a lowering of the deficit in 2003 to 3 percent of GDP. Only then did the economy calm down and the crisis passed. Are they longing for another one?
In any event, Israel cannot raise capital today on the world markets without American guarantees. If we try to do so, the interest rates we will be required to pay will be so high that we will be declared bankrupt de facto - and next time it will happen far more quickly, without former foreign minister Shimon Peres as an international fig leaf.
This is why the guarantees are so important to Sharon. They will enable the government to raise capital on the international market, without an increase in the interest rates. With them, we will get money at a low, unrealistic cost, which is not affected by the true state of the economy.
But the guarantees are not in our pocket. They depend on the war against Iraq. Only in its wake, assuming it ends in a victory for Bush, will Congress agree - and then, not easily - to help the great power's allies, including Israel. Otherwise, in light of the recession in the U.S. economy, there is no chance of receiving the guarantees.
Whatever the case, increasing the budget deficit and then covering it with the help of the guarantees is a sure-fire recipe for the next economic crisis. The situation is similar to that of a sick person who doesn't treat his illness, but instead breaks the thermometer. With the thermometer broken, the doctors are unaware that the patient's temperature is rising and fail to treat the illness - until one day, the patient suffers a trauma that is liable to end in death.
So don't break the thermometer.
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