The ongoing and increasingly heated clash between Finance Minister Silvan Shalom and Bank of Israel Governor David Klein was predictable. It's not about the rate of interest or the size of the budget deficit, but something a lot deeper: Will the public blame the current unemployment levels and the slowdown in the economy on the minister or the governor?
Shalom has been out to blame Klein personally, claiming that the interest rate is too high, causing severe economic and social hardship, while Klein accuses the government of lacking a social policy, and needing to change its priorities while keeping the deficit under control. Each berates the other, leaving the public to watch and judge.
Among the blows, it emerges that something happened in the treasury battle that has not been published before. The bank, as is known, is obliged to defend the shekel's exchange rate within the currency fluctuation band - so if the shekel reaches its upper limit, the bank must step in, buy up quantities of dollars available on the market, and stop the rate from dropping further. As a result of such actions, millions of shekels flow into the market, and the bank is obliged to soak them up in order to avoid inflation. The standard designated instrument for this is the short term debt certificate, which a central bank issues; but for several years now the treasury has forbidden the Bank of Israel to increase the issue of these debts, such that the bank has no alternative but to use the commercial banks to soak up the shekels. The banks have so far amassed NIS 45 billion in deposits at the central bank - a situation that endangers their stability. Additionally, this soaking up of shekels increases the interest rate spread - in other words, bank profits increase at the expense of the public, which gets a lower rate of interest.
It is clear that this restriction is a superfluous injunction imposed on the central bank by the treasury to make it clear `who is boss' and indicate that the bank shouldn't mess with the treasury boys. But it's equally clear that the restriction on short term debt certificates is harming some sectors of the public, particularly the weak, downtrodden sectors, about whom Shalom is always worrying.
Senior staff at the Finance Ministry recently reached the conclusion that the distortion ought to be corrected. When Shalom took up his post, these individuals presented him with a booklet of steps they thought he most urgently needed to take, including canceling the restriction on the debt issue to allow the bank to conduct its monetary policy in the most efficient way. Among the leading figures presenting this policy change were Tsippi Gal-Yam, Vered Dar, Avi Ben-Bassat and Nir Gilad. When nothing happened over the debt issue, they approached Shalom once again. But in the meantime, Gal-Yam, Dar and Ben-Bassat are leaving the treasury and only the accountant general, Nir Gilad, is remaining to fight the good fight.
And so back to the Shalom-Klein battle. Is Shalom wise enough to rise above petty considerations and lift the restrictions that cause damage to many members of the public? Or, in the war against Klein, are all means regarded as kosher - even if the economy and the public are made to suffer?
Want to enjoy 'Zen' reading - with no ads and just the article? Subscribe todaySubscribe now