The treasury's director-general, Ohad Marani, has uncovered the culprit: the Governor of the Bank of Israel, David Klein. Reacting to April's high CPI, Marani said that the central bank's 2 percent interest cut at the end of December was a mistake for which the economy has been paying a heavy price ever since with a rapid devaluation of the shekel and with inflation. Klein would now further injure the economy with an interest hike, he said. Thus, according to Marani, Klein is to blame for everything: inflation, recession and unemployment, while the treasury is liable for nothing. The treasury is absolutely flawless.
How did Marani forget everything he has ever learned? Was it pressure by the minister, fear of losing his job, a knee-jerk reaction to shun responsibility? Blaming the devaluation and price rises since December on the interest cut is absurd. That interest cut immediately sent the public withdrawing their savings from shekel-based savings and investing in dollar-linked assets, and thus led to the devaluation in December (which was good for growth and employment). But between January and now, the shekel fell another 10 percent, the recession deepened and unemployment worsened - all a clear result of the treasury's incompetence, the government's inaction and the security situation. Obviously, Klein is responsible for none of the above.
Marani's accusations are even more ludicrous bearing in mind all the forces that were pushing Klein to slash interest further each time and not to make do with 0.3 percent a month. The leaders of the treasury were ecstatic when Klein finally succumbed and lowered the rate by two percent in December. They were sure that growth was a sure thing then. At a press conference on December 23, Finance Minister Silvan Shalom said he was there to personally guarantee that Klein would not have a sudden change of heart. Those with good memory will recall how in March, Shalom and Marani pounced on the governor for hiking the interest rate by 0.6 percent. In a vendetta, Shalom submitted the bill to install a council of governors to decide monetary policy instead of a single governor as has been done to date. In the 0.6 percent hike, Shalom said, Klein was violating his commitment in December to cut 2 percent.
Instead of making false accusations against the Bank of Israel, Marani had better check himself first. How could he agree to keep the private-member bills that gave tax breaks to Negev residents and expanded government support to families with five children or more in the budget for 2001? Didn't he realize that these bills would be a stumbling block for any budget cut ever after? How could he go on talking about 4 percent growth in 2002 and base the original budget for 2002 on this daydream? How could he agree to a NIS 13-billion "cut," which in reality comprises mainly more taxes and a larger deficit, and thus makes a negative contribution to growth and employment? And how can he agree to impose taxes that make the cost of labor grow so that more people will become unemployed?
Oh, well, who needs an answer? The patsy has already been named.
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