As last week started, the Finance Ministry published a quarterly review on the state of the economy. The report brimmed with superlatives about our wonderful macroeconomic situation: the economy is expected to grow by 5.3% in 2006, the fastest rate in six years; unemployment is expected to drop by 0.5%, while tourism is rapidly approaching levels last seen in 2000.

Reading the report is a heartening experience, to be sure. But take it with a grain of salt and one of pepper, while about it. The year 2006 will be an economically good one, yes, but in large part for reasons external and historic.

The year 2006 will be good because of the global economic expansion, because of exports, and because we are harvesting the fruits of economic policy taken in previous years. It is also the year in which the political echelon is becoming economically complacent, the results of which we'll be seeing in the years to come.

The Finance Ministry loudly points to its achievements in reducing the budget deficits, and the finance minister again declared his commitment to reducing Israel's national debt.

But the Bank of Israel governor, Stanley Fischer, had his own reminder for the people of Israel last week: the long road we have to trek to reach international norms. Israel continues to measure its budget deficit in a unique way. It factors in only ministerial spending, not the true spending by the broader government, which includes bodies that are somehow financed, directly or indirectly, by the taxpayer. Also, the Finance Ministry calculates the sums in real terms, not in nominal terms which is the norm abroad, although Israel has had western levels of interest for three years now.

If we calculate the government deficit using western norms, then it was 4.5% of GDP, not 1.9% as the treasury says. Its deficit in 2006 will be 2.5% of GDP, not the nearly-zero figure of which the treasury is already hinting.

To be fair, the 2.5% deficit in 2006 is a true achievement, if we look at the nearly 10% deficit in the year after Silvan Shalom reigned in the Finance Ministry. But it is pitiful when we remember that 15 years ago, the Knesset ruled that the government should balance its budget by 1995.

True, there are countries that have lost all semblance of discipline with their deficits, such as the United States.  But they don't have national debts of around 100% of GDP. The comparison with the U.S. becomes all the more ridiculous given that the Americans have one key advantage that Israel does not: it can mint dollars, which is still the safe-harbor currency.

On Monday, the Bank of Israel governor decided to leave Israel's interest rates unchanged at 5.25%. Not many people noticed, though it's a pretty astonishing decision, looking back at Israel's  history. Like the rest of the world, Fischer probably assumed that the Fed would be raising American interest rates by 25 basis points to 5.25%. Israeli economic pundits largely expected that Fischer wouldn't take pointless risks and would therefore raise Israeli interest to keep it higher than the American rate.

But he didn't, explaining that he left interest rates unchanged in keeping with Bank of Israel policy of preserving price stability within the government's set target range of 1% to 3%.

The president of the Chambers of Commerce, Uriel Lynn, hastened to applaud the decision, and Fischer's move to sever the "Gordian knot" between American and Israeli interest rates.

Fischer must have chuckled at the conceit: it hadn't been his decision, it had been decisions made each and every day by investors in Israel and the world. If they believe in the stability of the Israeli economy and in the credibility of government policy, they have the power to sever the Gordian knot, and to flee the shekel if the interest-rate gap disappears, or tilts in favor of the shekel. Fischer can only keep a close eye on their conduct, try to anticipate it in the future, and act accordingly.

China is the trendiest place to do business, and India's next. True, the Mumbai stock exchange has plunged by 19% since its peak on May 10. But in the three preceding years it rose by 320%. One person doing fantastic PR for India is the American journalist Thomas Friedman, in his book "The World is Flat: A Brief History of the Twenty-first Century". It has sold 1.6 million copies so far and no small part of it was devoted to the outsourcing industry and the gigantic foreign investment in India.

India truly is a country with huge, not to mention riveting, economic potential. It will have great influence over the global economy, and it's intriguing to compare it with Israel.

Here is a riddle for you.

By how many hundreds of percent is FDI - foreign direct investment - greater in India than in Israel? Five, 10, 20?

Hah. Israel attracted more FDI than India did in 2005. Foreigners directly invested $6.1 billion in Israel, compared with $5.6 billion in India.

India may threaten many industries in Israel, including hi-tech. But it could also pose a terrific opportunity for us.

The most interesting item of all didn't appear in the Finance Ministry report. Nor did the Bank of Israel bring it up: two professors from the Shalem Center - did.

Eric Gold and Omer Moav studied the brain drain from Israel, and concluded that's been intensifying. Unsurprisingly, yerida from Israel is directly correlated with the education level of the population. In 2005, more Israelis abandoned the motherland: 25,000, up from 19,000 in each of the previous three years.

People noisily talk about poverty and social inequalities as a "time bomb".

The best of our brains leaving the country is a deathly silent process that nobody talks about; not out leaders and not the people heading out, either. Yet it is the most frightening time bomb of all, for the economy and for society as a whole.