Analysis / No plan, just pleasantries
Despite a festive and polite joint statement, the meeting yesterday between Bank of Israel Governor David Klein and Finance Minister Silvan Shalom was not "good." It will achieve neither stability nor quiet in the capital market.
Despite a festive and polite joint statement, the meeting yesterday between Bank of Israel Governor David Klein and Finance Minister Silvan Shalom was not "good." It will achieve neither stability nor quiet in the capital market. The statement talks of the opening of a new era of cooperation between the two and of their commitment to price stability and meeting the goals of the deficit.
These are beautiful, lofty words but they are also empty words whose real quality will soon become clear to the capital market. The rift between Klein and Shalom has not been healed. There will be no real cooperation, and they will continue to argue in public, both about the budget and about the interest rate.
At yesterday's meeting, the two failed to discuss the burning issues of the day. They held no serious discourse about the budget nor about the dollar. They did not put their heads together over the idea of issuing "Gilboa" dollar-linked bonds, nor did they analyze the tax reform that was presented in the morning to the general public.
Had they seriously discussed these important issues, however, they would not have managed to reach any sort of agreement, because Klein and Shalom are incapable of agreeing on anything. The finance minister believes he has already done his utmost with regard to the budget, and that it is impossible to cut further because only the bare minimum remains. On the other hand, Klein believes that a further extensive cut must be made in the budget and that current expenses in the budget must be decreased at the expense of diverting several billions to infrastructure investments.
If they indeed had wanted to show determination and commitment to stabilizing the markets and thus to curb the wave of devaluations and price rises, they should not have released a polite and vacuous statement to the public, but should rather have presented an economic plan made up of two components.
Shalom should have announced further cuts in government activity so that the public could believe that the deficit in the 2002 budget would return to being 3%, and perhaps even decrease to 2% in 2003. For his part, Klein should have announced another hike in the interest rate, and then they both would have indicated to speculators that there was no point in continuing to attack the dollar because there were two serious people out there to stop the attack.
That would have been a plan that could have settled the capital markets, brought back stability and eliminated the devaluation of the shekel. A neatly worded statement with nothing behind it is incapable of doing that.