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The Bibi the Hero version, or How the Finance Minister Saved the Israeli Economy From Collapse:

As 2002 rolled to a close, the Israeli economy was sinking to one of its lowest points in history. Budgetary discipline had evaporated. Rating agencies were threatening to downgrade the nation. The yield on Israeli government bonds had soared to unprecedented heights, the stock market was slumping, bank stocks were trading at half their book value and the Bank of Israel was warning that if the economy contracted for yet another year, one of Israel's major banks could collapse.

Then, in February, Benjamin Netanyahu took over the Finance Ministry. Investors immediately signaled their approval. Within two days, the Tel Aviv Stock Exchange had climbed 4 percent. A month after taking the helm at Finance, Netanyahu presented the outlines of a sweeping economic program based on deep budget cuts and reforms of the labor market and pension system. The markets applauded wildly.

In June 2003, Netanyahu set off for his first victory tour of the United States. He was welcomed by the most famous economist in the world, Federal Reserve Board Chairman Alan Greenspan. After their chat, Netanyahu announced: Greenspan looked at the drop in interest on Israeli government bonds and told me, "it shows you're doing the right things."

Netanyahu pushed through his budget cuts. Government expenditure dropped in real terms for the first time in 20 years. He also shoved through his pension reform, and National Institute allowances were reduced as well. In the year's second half, modest economic growth was restored after three years of contraction.

In an interview with Haaretz, Netanyahu summed up his first year at the Finance Ministry. He started the meeting with a short presentation, passing quickly through the slides until reaching the one portraying the performance of the TA-100 Index. Showing this slide, Netanyahu beamed with pleasure: The index rose 50 percent during his year in office. And when seen from rock-bottom, the minister pointed out, it rose 70 percent. Clearly Netanyahu views the rise of the TA-100 Index as official recognition of his success in his first year as finance minister.

And now for the other version, or A View of the Economy in General and the Capital Market in Particular:

In the fall of 2002, U.S. markets were at their nadir. Nasdaq was at 1,114 points and the Dow Jones had dropped below 8,000. The weakness rippled throughout the world. Interest rates in emerging markets skyrocketed. The spread between average returns on government bonds in emerging markets and U.S. treasury bills reached 10 percent.

Exactly the same happened in Israel, where interest on Finance Ministry Shahar bonds climbed to 9 percent above the rate on comparable U.S. government paper.

A flurry of rate cuts by Greenspan brought U.S. rates to their lowest level in 40 years. U.S. President George Bush abetted Greenspan, pouring money into the market through tax rebates and increasing the deficit.

And the markets moved. By October, the trend had reversed. The low rates in the U.S. pushed investors back into stocks and bonds in emerging markets. The hunger for high returns sent international players to the markets of Brazil, India, Chile and in fact most of South America, southeast Asia and eastern Europe - and to Israel.

For the first time in history, foreign investors started investing in shekel-denominated Israeli government bonds, which were offering double-digit returns.

When the U.S. finished conquering Iraq and extended Israel $9 billion in loan guarantees, Israeli bonds looked more attractive than ever. Within half a year, overseas hedge funds had infused $500 million into Israeli bonds. Israeli investors joined the demand after the treasury announced a dramatic decrease in domestic bond offerings.

The low interest rates and expansionary fiscal policy in the U.S. did their job and the U.S. economy started to rally. Third-quarter growth was more than 8 percent, helping the U.S. to end 2003 with 3.1 percent GDP growth. The rally in the U.S., the gains on Nasdaq and the drop in domestic interest rates all helped to push up Tel Aviv stocks.

Tel Aviv indices soared about 55 percent in 2003, to the exhilaration of the locals, who failed to notice that by international standards, that was not much. Most emerging markets saw their stocks double in price. Even Germany's stock indices gained 40 percent in 2003.

The surging demand for Israeli government bonds reduced the interest rate spread between Israeli paper and U.S. paper to 3 percentage points. Again, a broader look shows that Israel was part of a global trend. The average spread between returns on South American, Russian, southeast Asian and other bonds and comparable U.S. bonds dropped to about 4 percentage points.

Greenspan, who lavished compliments on Netanyahu over our falling interest rates, forgot to mention that the drop in rates, like the gains by Israeli stocks, were in keeping with the trend in most emerging markets.

The war of the versions

By now, the difference between the two versions is quite clear. The question is which describes the last year more accurately - the Hero version, which places Netanyahu and his economic program in the center, or the Global version, which gives pride of place to the worldwide economic rally and the U.S. loan guarantees, by virtue of their contribution to changing the perception of Israel.

The truth is probably somewhere in the middle - an assessment that leads to two important conclusions.

One: The finance minister and his team would do well not to rest on the laurels of their achievements in 2003. They had a strong tailwind, and the road ahead is long and weary. The guarantees and the international financial boom gave us a breathing space in which to restore responsible economic management.

Two: The Israeli economy and capital markets are more exposed, and more vulnerable, than ever before to the global economy and to the movement of capital. The boom in America and the money streaming into emerging markets could continue propelling us forward this year. But that tailwind could also easily change direction.