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In recent weeks, details have been reported of the emergency austerity plan being drafted by senior Finance Ministry officials, and naturally a great deal of attention has focused on the extent of the budget cuts and the expense items to be affected. The budget cuts are designed to close the expected gap between state revenues and spending in 2003, in order to meet the deficit target. The treasury knows budget cuts are necessary for a balanced budget without increasing the deficit, but also understand the cut could undermine growth and create an endless loop that will be hard to break. Therefore, complementary steps in the shape of structural reforms should be taken to help jump-start economic growth.

One item that always comes up in this context is the capital market reform started in the 1980s which ended the issue of bonds slated for the provident funds. In the early 1990s, insurance companies were also sent to the capital market, and in 1995, the new pension funds joined them, investing directly in the stock exchange.

But the big pension money is in the veteran pension funds, which still enjoy the fund-only bonds subsidized by the state. The damage these bonds do to the pension funds is double-edged: First, the funds heap upon themselves (and on the taxpayer) huge liabilities, knowing the treasury will eventually cut the check; and secondly, their forced absence from the capital market introduces a form of discrimination among long-term savings options.

For years, the treasury and Bank of Israel have written countless position papers on the importance of completing the capital market reform and bringing the pension funds into the arena. The managers of the veteran Histadrut funds have always opposed this, seeing the guaranteed returns from the treasury bonds - 5.57 percent a year without lifting a finger - evaporate before their very eyes.

But this era too is now coming to an end, as the veteran funds' actuarial deficits swell year by year, reaching a sum of NIS 60 billion in 2001. There are even whispers at the treasury that the real number is nearer NIS 140 billion.

Those deficits are to be covered by the Israeli taxpayer for the first time this year, as the over-bearing financial straits hit the construction workers' pension fund. The fund's principal assets are not enough to make its pension payments and the treasury plans to allocate NIS 450 million from the state budget to make up the difference.

As the years roll by, so other pension funds will also run out of assets, falling back on the state budget for succor. That long term that was debated for so many years is now upon us, and therefore decisions about the crisis in the pension sector must be made now.

As far as the funds' commitments go, there is no alternative to the appointment of professional managers who will make order and stop the bleeding. On the investment end, the time has come to gradually bring the funds into the capital markets. The market will appreciate the move more than any budget cut and its contribution to renewed growth will be both substantial and immediate.