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Not even the assassination of Ahmed Yassin could spoil the mood on the Tel Aviv Stock Exchange yesterday. After a symbolic 1.8 percent dip on Monday, immediately following the attack, less than the drop posted on some European markets, by Tuesday's session investors were over it and the Maof-25 index closed unchanged.

The TASE is feeling optimistic. After its 60 percent climb in 2003, it's about to close the first quarter of 2004 with an 11 percent gain. Optimism has even returned to high-tech. About 50 companies have raised $300 million this year, the most raised in a single quarter for two years.

The banks are also feeling optimistic. Next week they'll be releasing their financials for 2003, and are expected to report a sharp upswing in profits. Bank Hapoalim will probably be in the lead with about 10-11 percent return on equity thanks to stock market gains, and may cancel some of the doubtful debt provisions it made during 2003.

The Finance Ministry is feeling optimistic too. The stock market is climbing, and developments in exports and high-tech offer hope that the state's income from tax will grow.

And the Bank of Israel is optimistic. Last week it officially announced that the recession is over, and this week it presented updated figures on its index of combined indicators, which show that economic activity is picking up.

So everything's hunky-dory? All we have to do is lean back, applaud the upswing and pin medals on the chests of the rally's architects - the Finance Ministry, the Bank of Israel, the bankers and the businessmen?

Remember the points of comparison

Not exactly. First of all, remember that the situation of the economy, of the stock market and of the banks looks good mainly because the point of comparison, their performance in 2002, was so pathetic. Economic growth of 3 percent in 2004 is impressive compared with the 1.7 percent posted in 2003. But remember that it translates into per capita growth of 1 percent, while growth per head in the U.S., our main export market, is expected to be triple that. In 2004 too, Israel will be at the bottom of the growth ladder.

Second of all, remember that of the five main reasons Israel's economic deterioration halted, four are external, and have to do mainly with the fact that Israel has become, in so many ways, the 51st state of the United States.

The revolution wouldn't have arrived without that $9 billion in loan guarantees, without the rally on Nasdaq and in the U.S. economy, without the steep drop in domestic interest rates, enabled by the bottom-crawling funds rate in the U.S., and without the conquest of Iraq and the massive American presence in the Middle East.

Here's a current events anecdote for you: The surge on Wall Street enabled Bank Hapoalim to execute an astonishing IPO for its little start-up bank, Signature, which was established only three years ago.

Courtesy of Wall Street

The Signature offering, at a company value of $400 million, generated an NIS 130 million capital gain for Bank Hapoalim, while increasing its equity by NIS 400 million.

That NIS 400 million will mean a lot to the bank's capital adequacy ratio, to the dividends it gives its leveraged shareholders, or to fresh credit it can extend, and it's all courtesy of Wall Street.

It is true that at this point, the reasons behind the upswing shouldn't matter. What matters is that we're off the collision course and that the business sector is starting to recover.

But in the longer run, the recovery of the last 12 months also bears a serious cost. Every morning you can read about the benefits deriving from the American largesse, but nobody wants to talk about the damage it does.

That American piece of pie prevented Israel's economic leaders, the ones from the business sector, and the banks and the entrepreneurs from learning all the lessons they should have. It averted the need for a sweeping, deep recovery plan.

The government learned that it can dictate wasteful fiscal policy and avoid reforms, that it can continue heaping money on cronies and can maintain a bloated public sector. Even after Netanyahu's much-touted budget cuts, we remain with an inflated public sector that will be gobbling up more than 55 percent of Israel's GDP.

The American largesse obviated the need for a root canal of the defense budget, at the local authorities and at all those public sector pork barrels. Israel's mushrooming public debt will dictate high taxes for long years to come, precluding exploitation of Israel's real growth potential.

The bankers learned they can extend tens of billions of shekels in credit at minuscule spreads, to pay massive salaries to their workers, and to make hideous managerial mistakes, without paying the price. No banker has had to step down over the debacle, nor has their manpower been seriously shaken up.

The upswing in the markets arrived at the last minute. Now the banks can roll debts from their balance sheets to clients captive in their provident funds, their mutual funds and insurance companies.

High-tech people learned you can pour billions into lousy companies, you can demand high salaries and inflated costs, because at some point Nasdaq will recover and companies with modest earnings will trade at valuations of billions. Also, venture capital funds will continue to support bad companies, to avoid having to write them off.

Venture capital fund managers learned you can regain the faith of investors, even though you can count on one hand, or at most two, the number of start-ups they've supported over the years that are making profits today.

People at the Bank of Israel, at the treasury, at the banks, in business and in high-tech know full well just how close we came to the edge of the abyss in 2002. And they know how we were pulled back.

But nobody has any interest in saying so out loud. They are all fixated on the short run, on their seats, on the next fund-raising drive, on their bonuses, on the next offering and about rolling over their debt. Not one is about to climb a soapbox and scream the truth aloud.