At every possible opportunity, Finance Minister Silvan Shalom talks about the interest rate. Though he claims he is not trying to pressure Bank of Israel Governor David Klein to reduce the interest rate, Shalom says "The governor knows what my position is, namely, that the interest rate should be downsized in larger doses. I favor price stability but I also want to again see the economy growing at a fast pace and to again see a lower unemployment rate. I will not buy the theory that nothing can be done about the situation." However, who is responsible for economic growth and unemployment?
Admittedly, the governor should have brought down the interest rate at a faster clip over the past year and a half; such a pace of reduction would have helped the business community and would have spurred economic activity. However, even if the interest rate were 5 percent today instead of 6.5 percent, the economy would still be in recession because of the Intifada, the Nasdaq crisis and the Finance Ministry's policies - or, to be more precise - the Finance Ministry's failures. After all, no one should lose sight of the fact that the Finance Ministry is responsible for the heart of the economy: It determines the direction and speed of the economy, while the Bank of Israel, though admittedly in control of the interest rate, has influence only over the margins of the economy.
The subject of today's column will not be the budget and its volume; instead, it will be the reforms and structural changes that the finance minister is responsible for implementing. There is no need here to discuss the reasons for the impact of reforms on economic growth, unemployment and the lowering of prices - that is, on the upgrading of the standard of living of all Israelis. All one needs is a small reminder, such as the one provided when Bezeq's monopoly on international phone calls was canceled. With the cancellation of Bezeq's monopoly, the price of an average international call dipped by 70 percent while the volume of international calls leaped by several hundred percentage points. Or how about the transformation of the cellular phone, once the exclusive province of the upper classes, now a universally accessible product that has improved efficiency and productivity?
Unfortunately, ever since the installation of the present government, reforms have succumbed to an early death. The reason is that each reform necessitates a tough battle against those in positions of power, including workers, so the reforms quickly lose their popularity. After all, nominations by the ruling party's central committee are always somewhere in the background.
Take, for example, the proposed reform in Israel's ports. It was decided quite a while ago that a new port - the Jubilee port - would be created in Ashdod through a private entrepreneur and not through the Israel Ports and Railway Authority, which is a monopoly controlled by the dock workers and whose services are slow and poor in quality. Moreover, those services are an expensive burden shouldered by all Israelis. A few private wharfs would introduce competition into this system, and, as a result, services would improve and prices would tumble. However, it was recently decided that the Jubilee port will be established as an integral part of the Ports and Railway Authority. Thus, the hopes that this new project would effect a significant change have been dashed.
Even the planned reform of the providential funds, supposed to create competitiveness in this important field, is getting nowhere fast. The reform would have limited the relative weight of the banks in the providential fund market to no more than 10 percent and would have thus significantly reduced the clout of Bank Hapoalim and Bank Leumi and opened the door to foreign investment houses, to competition and to a meaningful reduction in the inflated fees charged by these funds.
Here is another example: It has been proposed that pension funds be allowed entry into the capital market, so that they can fulfill the same kind of function that their counterparts fulfill in industrialized countries around the world: In other words, long-term investments in bonds and company shares and the creation of sources of capital for the private market that are the fuel for increased investments and for economic growth.
Another important reform would be the inclusion of private manufacturers in the production of electricity. Although this reform has been discussed for years, private manufacturers account today for less than one percent of all the electricity produced by the Israel Electric Corporation. Similarly, the delivery of electricity should be separated from its production, which means that there is a need for privatizing the IEC's power stations and for creating competition between them - competition that would increase efficiency and lower prices.
If the finance minister wants, he can ask the officials in his ministry for the booklet on reforms. This is an impressive 97-page document that offers details on dozens of important reforms. These reforms contain the potential for real economic growth and Shalom should be fighting to implement them. So he need not accept "the theory that nothing can be done about the situation." He should also remember that he is the one who should be doing something about the situation. That responsibility belongs exclusively to the finance minister.
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