If we had the Chinese practice of designating our years by animals instead of boring old numbers, and could name them with hindsight instead of by a predetermined cycle –then 2014 should go down as the Year of the Hamster as far as the Israeli economy is concerned.
- Bank of Israel holds rate in place but hints at other ways to spur growth
- Zero-VAT or zero-sum? Gloves come off in budget battle between PM and his finance minister
- Is that a wolf at the door or a chickenshit politician?
- Bank of Israel chief: Economic reforms require lasting government
- It's official (almost): Israel's economy is hitting a wall
- Economy grew by 2.6% in 2014, while per capita growth rose by just 0.7%
- NIS 500m change hands in the dark
- Israel, where people love to lacerate themselves
- IDB partners still at odds over plan to recapitalize holding company
The image of a pint-size rodent racing nowhere on a wheel certainly captures the zeitgeist of a year characterized by a lot of action, but little discernable progress.
There was endless talk and nearly endless proposals for solving the problem of the high cost of housing and food, but prices remain high and the proposals were mostly shelved.
Prime Minister Benjamin Netanyahu and the finance minister, Yair Lapid, fought over the 2015 budget and defense spending, yet we are closing 2014 with elections but no budget.
We thought the issue of the gas monopoly was resolved last March only to learn last week that the antitrust commissioner has changed his mind. Eduardo Elsztain and Moti Ben-Moshe were supposed to rescue the IDB group conglomerate but instead fought over who would play captain while the ship continued to sink.
There were few heroes this year and far more goats, indeed so many that 2014 could just as easily go down as the Year of the Goat. Trouble is that so many years would end up as Goats that it would be difficult to distinguish one from the next. We’ll stick to the hamster and hope against hope that 2015 merits something more enviable, like a bull.
Goat No. 1
The title of Goat No. 1 goes to Yair Lapid. The now ex-finance minister got off to a good start in 2013 by putting the government’s fiscal house in order. Not that he has the slightest clue what he was doing or the political price he would have to pay for it, but he was enough of a neophyte to pay attention to the treasury mandarins.
The “lesson” he learned in 2014 was to ignore them and come up with his own, politically expedient ideas like exempting many home buyers from value-added tax. While he was maneuvering, with little deftness, to get "Zero-VAT" through the Knesset, the housing market fell apart – price kept rising and construction slowed, ensuring that home rices will rise even more. In all events, even if the Knesset had passed the law, Zero-VAT would have simply boosted demand and created another layer of bureaucracy to stop VAT cheats.
Goats No. 2 and 3 are Eduardo Elsztain and Moti Ben-Moshe. They wrested control of the sprawling IDB at the end of last year and, to their credit, have since pumped a lot of the own cash into the huge concern. A deal to sell group company Clal Insurance to Chinese investors fell through and an initial public offering in the giant agrochemicals maker Adama had to be pulled. But there is little sign of anything else being done deal to restore IDB to health and much of the old management team that presided over IDB’s descent into debt are still reporting to work at IDB’s now shrunken headquarters.
Shares of IDB Development Corporation, which sits at the apex of the holding group, have fallen close to 70% this year. The reason is that Elsztain and Ben Moshe have been fighting over control of IDB itself, stalling recovery efforts. Whether the dispute is over strategy or just personality differences, or both, it is a shame that such a big chunk of Israeli business is beholden to two men. They are two examples of why we need to bring the tycoon era to an end in Israel.
Goat No. 4 is Naor Narkis.
Wait, isn’t he the man who brought our attention to the fact that chocolate pudding in Berlin is cheaper than in Tel Aviv? Isn’t he a hero? A warrior defending hundreds of thousands of housewives from being robbed every time they buy a Milky? The answers are yes, no and no.
First of all, having insisted that it was impossible to live in Israel because of the high cost of food and housing, Narkis then promptly packed his bags and returned to Israel anyhow. That alone merits goat-dom.
But the real reason is that Narkis is a case study in how superficial and uninformed the public discussion on economic policy has become and how short everyone’s attention span is. Rage explodes on social networks over the price of cottage cheese or Milky, the media pick up on it, fueling the fire and putting the fear of life into politicians, who then come up with hastily conceived and poor ideas of how to solve it. The anger dies down while the problem remains. Israel did better in the pre-2011 era when economic policy-making was in the hands of a cadre of senior bureaucrats. They made mistakes but Israel was on the whole better than in this era when Facebook rules.
A hero, with vision and good luck
And there's a hero. Actually, a heroine. Karnit Flug, who only became Bank of Israel governor last year after one man after another stumbled on the way to office, has so far proved her mettle. If she doesn’t command the same respect as Stanley Fischer, she has certainly stepped comfortably into his Oxfords as the sole responsible adult looking after Israel’s economy.
While Lapid and Netanyahu fought over political points and needlessly pushed Israel into early elections, Flug has cut interest rates to put some life into flagging economic growth and engineered a shekel depreciation that is giving a badly needed boost to exporters. She has done what she can to constrain the increase in housing prices by clamping down on mortgage borrowing. She offers a vision of Israel as a social-welfare state that is free of slogans and illusion.
Flug has been helped by a big dose of good luck. The dollar has been strengthening globally, which has contributed as much if not more to the shekel’s depreciation, and oil prices have collapsed, eliminating any inflation threat from the 18% decline in the shekel’s value. Moreover, it seems she panicked when Operation Protective Edge dragged on over the summer and looked like it was going to take the economy as a casualty, and cut interest rates too quickly and too sharply. Even heroes have their flaws; Flug’s hasn’t been tragic.
As for 2015, you have to be unreasonably optimistic that things will be different and that it will be the Year of the Bull for Israel. The election is likely to produce another gridlocked government and the populism that has infected the economic debate shows no signs of letting up. We can’t have two consecutive Years of the Hamster, so my bet is that come this time in 2015, we should be able to call it the Year of the Chihuahua – lots of yapping but little bite.