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"It is entirely ridiculous that Israel's per capita GDP is $16,000 per annum, when it should be $40,000," Finance Minister Benjamin Netanyahu recently told Business Week. Ridiculous or not, $20,000 would be wonderful. But Netanyahu went on to boast in the interview about his success in getting the economic policy ratified by the Knesset, which led to "dramatic cutbacks in the public sector and drastic improvement of competition in the business sector."

This is an important rescue and reform plan, but the adjectives the finance minister used were a little out of hand. It is a little exaggerated to call the cutbacks "dramatic." The original plan called for 8,000 pink slips and legislative changes allowing management-level officials to fire and transfer employees, but in the end, just 750 public sector employees went home, and that managerial flexibility was left entirely symbolic. It's a step in the right direction, but "dramatic"? Not so much.

Also, there is no "drastic" improvement in the business sector. Taxes haven't come down, bureaucracy hasn't changed, government spending is still sky high, privatization and market competition have happened only at national airline El Al, while the Israel Electric Corp., domestic telephone monopoly Bezeq, water utility Mekorot, the Ashdod port, Israel Railways, Israel Discount Bank, Bank Leumi and Oil Refineries all wait in line with the Defense Ministry budget for human resources, wages and pensions. Netanyahu has a long way to go before the word "dramatic" and "drastic" spring to mind when he walks into a room.

In any case, Netanyahu is now mad at Bank of Israel Governor David Klein for not reducing interest rates by more than half a percent. He is careful about stating that publicly, but does share the thought with his friends behind closed doors. He fears that the so-high real interest rate (6.5 percent) will not allow the economy to get on a growth track, will not let the exchange rate recover. If there is no growth, tax collection won't recover, and he will have to cut another NIS 10 billion from the 2004 state budget to fulfill his promise to the Americans of a 3 percent government deficit - a move he fiercely hopes to avoid.

The truth is his anger is justified. Klein's conservative policy is unacceptable. It is no great shake to take such a huge security margin and slow the economy. All the economic indicators say the time has come for a substantial cut in lending rates. Inflation expectations are 1.3 percent for the year, yields on unlinked, long-term bonds have dropped from 11.7 percent just four months ago to a comfy 8 percent, and the yields on ten-year CPI-linked bonds have fallen an entire percentage point to 4.7 percent in that period.

This is plenty to cut interest rates another half a point in two weeks and to keep going every two weeks until we hit a more reasonable level. No economy can rise up from the ashes with a 6 percent real interest as a ball and chain.