The Bottom Line / The billions for that rainy day
Up until recently, both the Bank of Israel and the Finance Ministry said that most of the economic damage suffered by Israel in 2001 came as a result of the high-tech crisis and Nasdaq tumble.
1. The cost of the intifada. Up until recently, both the Bank of Israel and the Finance Ministry said that most of the economic damage suffered by Israel in 2001 came as a result of the high-tech crisis and Nasdaq tumble. But this week, the Bank's research department released a report that showed the direct economic effect of the intifada on the private sector.
It seems that the direct cost of the intifada totaled NIS 13 billion, which is equivalent to 4 percent of the private sector output. The bank pointed out that that is just the direct loss, not taking into account indirect costs from lower consumer spending or drop in investments or loss of income or the cost of instability in the political-security sphere.
So you can imagine how our economy could have benefited had it made an extra NIS 13 billion in goods and services.
2. The shekel mountain. This visual image was thought up by Tsippi Gal-Yam and Vered Dar from the treasury. They used to warn us that one day when the shekel exchange rate drops, the public will swoop down on the foreign currency market to convert billions of shekels to dollars, there will be an almighty devaluation of the shekel causing high inflation and a general economic collapse. We were warned.
And here we are, at the very moment that this disaster was meant to happen. Governor of the Bank of Israel David Klein lowered the interest rate by 2 percent, and this mountain of cash was supposed to collapse and engulf us. But what really happened? Some billions of shekels went for the dollar causing a controlled and excellent depreciation, while billions went to cause share price rises on the local stock exchange. Everything positive. Everything good. And it all happened despite the unstable economic and political situation. So isn't it about time that Gal-Yam and Dar sobered up and apologized?
3. The deficit burden. The vast deficit of 2001 forced the accountant general Nir Gilad to seek ways of financing the tremendous sum of NIS 21.3 billion. He was frightened of raising capital overseas because of Israel's shaky image, which would have meant offering higher interest rates, thereby showing Israel up as a bad risk.
So instead he went for issuing state bonds for 5-7 years, which brought in NIS 16.3 billion. But the cost of this was raising interest rates, harming investment and growth. In addition, there were the annual interest payments, vast sums that would otherwise be available for alternative state priorities such as paving new roads, or developing the railways or paying more to the disabled.
That's not all. Gilad also drew NIS 5.9 billion from the government deposit at the Bank of Israel. And it doesn't matter what the accountant general calls it, it only has one meaning, namely, Printing Money, with all the negative connotations of inflation and balance of payments.
The government is allowed to withdraw up to 1.6 percent of its current spending plans, that is, up to NIS 3 billion. The government has foreign currency deposits at the bank from the time of U.S. guarantees, but that is diminishing so fast that Gilad has little room for maneuver this year. That little avenue of trickery is closed.