The highlight of the 10th Caesarea Conference was supposed to take place last night at 8, when Professor Stanley Fischer, former vice president of the International Monetary Fund, and New York Times columnist Tom Friedman were slated to lecture on "the impact of globalization on Israel's economy."

They were not, of course, going to be here in person: what sane American would risk his life lecturing in Jerusalem? They were merely going to appear on a big screen thanks to video conferencing technology.

But in the end, the two even canceled their video appearances: Fischer said he was on vacation in a remote location, while Friedman said he had just returned from Iran and was tired. So conference participants were forced to make do with substitutes: former prime ministers Ehud Barak and Benjamin Netanyahu. You decide whether that was a fair trade.

Overall, the atmosphere at the conference was one of gloom and even depression. It's "the situation," of course. And the forecasts for the future are equally black and frightening.

There was no fighting spirit at the conference; any criticism of the government was uttered in muted tones. Once, these conferences crucified former Bank of Israel governor Jacob Frenkel, and later his successor and current central bank chief, David Klein. But yesterday, even Danny Gillerman had nothing to say against the latest interest rate hike. Once there were also battles between the Finance Ministry and the Bank of Israel. But this time, all the disputes were papered over.

The keynote speech yesterday was given by Finance Minister Silvan Shalom, who listed several reasons for the difficult economic situation. None, of course, related to the treasury's zigzags over the 2002 budget; they were all external factors beyond his control.

The main reason for the crisis, according to Shalom, is "the security situation," with its heavy defense expenditures and its loss of gross domestic product. But some of those present remember that before becoming finance minister, Shalom used to say it was possible to maintain a flourishing economy regardless of the security situation. Today he thinks otherwise - since, of course, it is necessary to blame someone or something other than himself for the country's economic woes.

The other reasons Shalom gave were the worldwide economic slowdown and the collapse of the high-tech industry.

And what about Klein's high interest rates? This time, Shalom did not utter a word of criticism - in sharp contrast to the past. He wants the "cease-fire" with the central bank to continue, because he has only one goal right now: economic stability. And to maintain stability, he understands that what is needed now is to cut the defense budget and allow Klein to keep interest rates high.

The turnabout in Shalom's behavior occurred three weeks ago, when he and Prime Minister Ariel Sharon understood, after talking with economists and businessmen, that the exchange rate was liable to exceed NIS 5 to the dollar, and the economy was liable to enter a Russian- or Argentinian-type crisis that would result in their being kicked out of office. Now that is truly frightening.