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Even Bank of Israel Governor David Klein has given in. Yesterday, he decided to lower interest rates by 0.4 percentage points - slightly more than forecasters had predicted, because he is almost out of excuses. Price stability has been achieved, inflation has disappeared. Long-term interest rates have fallen sharply, and there are loan guarantees from the United States, so there is no foreign currency problem. But one excuse remains, and it is a real one: the budget deficit.

Even after the government's economic emergency plan passes the Knesset, the 2003 budget deficit will be 4-5 percent of gross domestic product, and that is too much. After all, the government committed itself to a 3-percent deficit this year. Soon, the state will have to raise the enormous sum of NIS 20-25 billion to finance this deficit, thereby "drying out" the private sector and causing long-term interest rates to rise. This will dampen investment and economic activity still further, which in turn will impede growth and employment.

It is at this point that Accountant General Nir Gilad enters the picture. He is preparing a "trick." After the Knesset has approved the budget cuts, Gilad will raise $3 billion with the help of the first installment of the loan guarantees.

The treasury plans to use part of this money to finance the budget deficit. This is known as "reducing the pressure on the local capital markets." As a result, long-term interest rates will not rise, and Klein can continue to lower the central bank's key lending rate.

But Klein does not like tricks of this sort. Financing the deficit with the aid of a dollar loan is like trying to have your cake and eat it, too.

It will enable the government not to cut as much as is necessary from the budget by deluding itself that increasing Israel's external debt entails no costs and no risks. But increasing the external debt is very risky, because if the money is not used for investment in infrastructure, it will not spur growth, and then there will be no money with which to repay the loan. And dollars are even harder to repay than shekels.

And while we are talking about the enormous budget deficit, it is also worth mentioning another trick - this time by the treasury's wages director, Yuval Rachlevsky. When the treasury's budgets division proposed cutting public-sector wages, everybody laughed - except for Rachlevsky. He said, "We can always try." And with infinite patience, he even managed to attain this unattainable goal.

The crisis came when Histadrut Chairman Amir Peretz claimed that the cuts were to be spread out over 24 months starting from the day the agreement was signed. In contrast, Minister Meir Sheetrit claimed the agreement covered the calendar years 2003 and 2004, meaning that a full NIS 2 billion would be cut in 2003. Over the weekend, the two "horse thieves" - Rachlevsky and head of the Histadrut's trade unions division Shlomo Shani - got together and found a creative solution: Article 5 of the agreement will continue to refer to 24 months starting in June, but Article 6 will state that "rest and recovery" payments (dmai havra'a) and the Jubilee grant for 2003 will both be postponed. Thus both sides can claim victory, but the treasury will get the NIS 2 billion it wanted in order to partially plug the huge hole in the budget.