Israel Bank chief unveils dramatic rescue plan for economy
Bank of Israel officials to issue warning: Unemployement to hit 8% in this year's fourth quarter.
The governor of the Bank of Israel, Stanley Fischer, is recommending a stimulus package that seeks to stem the effects of long-term unemployment and recession, in a presentation scheduled to take place Tuesday in Jerusalem.
The Bank of Israel would like the government to approve an increase in unemployment benefits and infrastructure projects funded by the private sector as part of measures to boost the economy. The Bank is also recommending that industries should receive assistance from the state - as long as unemployment does not hit new heights.
Stanley Fischer and the director of research at the bank, Karnit Flug, will present the adjusted assessments for 2009 today. Prior to the press conference, Flug is scheduled to present the recommendations to Finance Ministry Director General Yarom Ariav and the director of budgets at the ministry, Ram Balinkov.
The bank officials will issue a warning that average unemployment will rise to 7.5 percent this year, and will climb during the fourth quarter to eight percent. Unemployment threatens all types of employees, skilled and unskilled, according to the Bank of Israel, and the experts consider it imperative to improve unemployment benefits, both by increasing the monthly stipends and by making them available for longer periods.
By law, the commissioner is the government's financial adviser. However, so far the Bank of Israel has avoided presenting a program for financial policy related to the state budget. The 2009 budget still needs to be approved and all budget matters are within the Finance Ministry's authority.
Until not long ago it was common for the Finance Ministry, sometimes in coordination with the Bank of Israel, to prepare a framework for next year's budget, which it would bring to the government for approval.
This year a number of unusual things happened: the government of Ehud Olmert lacked a majority to pass the 2009 budget in the Knesset at the end of last year, and elections were scheduled for the start of 2009.
The government Prime Minister-designate Benjamin Netanyahu is forming will have to secure the budget's approval within 45 days from its establishment.
The Bank of Israel's recommendations on how to handle the economic crisis focus on issues of employment, budget and taxation.
In its recommendations, the bank is also proposing that the incoming government uphold a decision made by the outgoing government last August, to the effect that its public outlays for 2009 will only be 1.7 percent higher than the 2008 budget.
The bank is also recommending that the budget deficit increase by no more than the change in the original estimated drop in tax revenues - about NIS 45 billion.
The Bank of Israel also recommends stepping up infrastructure projects that are funded privately, either in the Build-Operate-Transfer method, or under terms common under Public Finance Initiative schemes.
The bank is also in favor of creating a fund that will be able to provide state aid to industries in short-term difficulties, whose preservation makes economic sense.