Saying no to Santa Claus
The rapid and elegant sale to Deutsche Bank proves that there is demand around the world for Israeli companies. The price needn't constitute an obstacle because the economy will benefit greatly from the sale. All that needs to be done is to convene the interested parties and conduct a tender.
Louis Roth didn't disappoint. As soon as it emerged that the state had surprisingly sold 6.5 percent of its Bank Leumi stock to Deutsche Bank, he declared a labor dispute. After all, all Bank Discount workers recently received NIS 40,000 and the port workers got NIS 100,000, so how can he just sit idly by?
The fact that the share parcel was bought by the large German bank is an expression of faith in the Israeli economy. The direct reason for the faith is the improvement in Israel's credit rating - meaning an increase in demand for Israeli shares around the world. Kudos should also go to Benjamin Netanyahu and Accountant General Yaron Zelekha, who managed to secure such a high price and boost the treasury's coffers by some NIS 1.16 billion, thus reducing the huge public debt.
But here is where the real story actually begins. Netanyahu announced that he intends to share out the state's remaining stake in the bank (some 21 percent) for free. In other words, the Israeli Santa Claus will give the public a gift of NIS 3.7 billion. Every one of the 4.4 million citizens of the state above the age of 18 will get NIS 840, and the finance minister, so he believes, will become the darling of the nation.
At the outset, when the share-distribution initiative became public knowledge (Haaretz, December 24, 2003), the talk was of selling the shares at 50 percent of their value. The discount was subsequently upped to 80 percent; and now it turns out that it will all be given free of charge.
Zelekha believes that this is a fine way to encourage growth - because an increase in income will boost private consumption, resulting in more economic activity and more growth.
First and foremost, however, growth by means of boosting private consumption is not a very positive thing. The economy should grow thanks to investments and exports, and not the acquisition of VCRs and refrigerators, which would mean a rise in the balance of payments deficit. This is temporary and unstable growth.
Second, a one-time gift will have hardly any influence on private consumption. After all, we have already learned (from Milton Friedman) that private consumption is determined according to one's fixed income, and not by a one-off gift. The public will use the money to repay debts or put into savings, and consumption will hardly increase.
The "Santa Claus" method, therefore, is the worst one. Setting up the distribution mechanism in itself will cost a small fortune - some NIS 250 million. And we don't even have money for the health basket.
The plan is an incredibly complicated one that perhaps suits East European countries in which there is no capital market. Not every citizen has a bank account; many addresses in the population register haven't been updated; and the plan leaves much room for fraud. It's a sure-fire recipe for Israeli chaos that will go on for years, stirring up accusations and an infinite number of hitches.
Furthermore, distribution to the public at large will perpetuate the "directors' regime" at Bank Leumi. No one in charge, no reporting on management errors - bad for the bank, and bad for the public. And the main thing: The state will lose NIS 3.7 billion that could reduce the huge public debt - this is the correct gift for the citizens of Israel, because it means less interest payments and more growth. And this is why Zelekha and Netanyahu must announce the abandonment of the "Santa Claus" idea.
Another option is to sell the shares in the capital market, as was done with the sale to Deutsche Bank. This is a better option because it generates a return and reduces the public debt - but the problem of control of the bank won't be solved.
Therefore, Netanyahu must strive for the third, and best, solution - the sale of the controlling stake to a group of strategic investors. The rapid and elegant sale to Deutsche Bank proves that there is demand around the world for Israeli companies. The price needn't constitute an obstacle because the economy will benefit greatly from the sale. All that needs to be done is to convene the interested parties and conduct a tender. Just look at the improvement at Mizrahi Bank and Bank Hapoalim after they passed into private hands.
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