Olmert: I have my own plan to rescue pensions
WASHINGTON - Prime Minister Ehud Olmert may present his own plan to secure Israelis' pension savings today, just a day after the Finance Ministry unveiled its financial bailout package.
Sources in the Prime Minister's Office said that Olmert was dissatisfied with the treasury plan.
Olmert, who was visiting Washington, signaled his disapproval during a press conference, saying: "Economic decisions are made in the Prime Minister's Office, by the prime minister."
The plan Olmert is expected to adopt was prepared by the National Economic Council, headed by Prof. Manuel Trajtenberg. It provides a much broader safety net for pension savings than does the treasury's, which focuses mainly on bolstering the capital markets, and is thus expected to lead to a clash between the premier and his finance minister, Roni Bar-On.
"One of the most important goals is protecting savers, citizens who invested their money in pension or provident funds, who might reach retirement and find that a significant part of that money has disappeared," Olmert told the press conference, adding that he plans to convene a special discussion on ways to protect such savers upon returning from the United States tonight.
While in Washington, Olmert discussed the world financial crisis by phone several times with Bar-On, Trajtenberg and Bank of Israel Governor Stanley Fischer. The prime minister said he had asked them to prepare a plan of action, but that he "may present" his own blueprint as an "alternative" to the treasury's plan.
"I'm the prime minister, and I give orders to the treasury," he said. "It's important that a decision like this not be made by a few senior treasury officials. This is a decision of national proportions, for which the government and its head are responsible."
Olmert noted he has overruled the treasury's position before, as when he decided to give striking universities even more money than they had requested. He has also intervened in numerous other spending decisions recently, ignoring treasury officials' professional recommendations.
The final plan, he said, will be brought to the cabinet for approval.
The treasury's NIS 11 billion program, unveiled yesterday after weeks in which it claimed that no government action was necessary, is primarily aimed at enabling companies that issued publicly-traded bonds to repay their debts. Many of these bonds were purchased by pension and provident funds, two of the main vehicles for retirement savings.
However, the plan still needs approval from both the cabinet and the Knesset Finance Committee, and the latter's chairman, MK Avishay Braverman (Labor), said that he will not convene the panel until the treasury also enacts a plan to protect pension savings.
Of the NIS 11 billion, NIS 6 billion will consist of government guarantees to banks to enable them to raise money at low interest rates. Should the banks raise the full NIS 6 billion, they would be able to lend an additional NIS 60 billion, thereby hopefully spurring economic activity.
Though Israeli banks are in better shape than their counterparts overseas, fear of the spreading economic crisis has caused them to sharply curtail lending. The government hopes the guarantees will spur them to resume making loans.
However, the banks' initial response was tepid. Some said they do not need the money and have no interest in expanding their loan portfolios. Additionally, some bank managers expressed fear that the guarantees, though strictly voluntary, might lead to additional government intervention, such as limits on executive pay.
The treasury argues that even if the banks do not need the money now, they are liable to need it in the second half of 2009, when NIS 20-25 billion worth of corporate bonds will come due. The treasury fears that many companies will not be able to redeem the bonds on their own, and they will therefore need bank loans to avoid defaulting, with all the attendant negative consequences.
The remaining NIS 5 billion of the rescue plan will be invested by the state, alongside additional money from institutional investors, in 10 new, specialized investment funds. The state will choose the funds' managers by tender, with the winners being the institutions that pledge to invest the largest amount of their own money. The winners will have to at least match the treasury's investment of some NIS 500 million per fund, but the treasury is hoping they will put in three times this amount.
Like the bank guarantees, the investment funds are aimed at helping companies repay their debts: If a fund concludes that a given company is worth saving, it will buy up some of the company's stocks and bonds, thereby providing it with cash to pay its obligations. However, the funds will not invest in companies that are deemed unsalvageable.
The funds will be dismantled after five to seven years. If, by this time, they have made a profit, the government will receive a share of it. If not, the government will absorb the losses.
The new government elected in February will have to decide how to finance the plan.
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