Does It Matter Who the Finance Minister Is?

Yesterday we finally got rid of Avraham Hirchson only to find out that the new finance minister, the man who will have to overcome the risks and outsmart the dangers our economy faces, is Roni Bar-On.

A year has passed since Second Lebanon War, since the army managed to wring a significant budget increase out of the treasury. Now the army chiefs are warning us about the next war to come, while meanwhile Qassam rockets pepper southern Israel, the Hamas has rolled over Gaza and Lebanon is unquiet.

The political situation is rickety, too. We have a weakened coalition barely standing behind a prime minister who's being investigated on various suspicions and who's barely managing to function. He's deferring reforms and shaping practically no long-term economic plans.

In short, it seems Bar-On faces serious challenges.

But the real truth is that the identity of the finance minister almost doesn't matter (as long as it isn't Silvan Shalom, that is). The fact is that  despite the problems, the stock market is booming and nobody expects share prices to react much today. What moves Israel's market is the global marketplace: it is the international arena that sets interest rates, sets boundaries for budgetary madness, and prices Israeli government bonds.

With one phone call, foreign investors can take their money away and send jolts throughout Israel's economy. A finance minister who arouses their disapproval will very quickly find that the charts reshape his agenda.

Israel is not in a state of economic existential peril. It doesn't need somebody to market it to the world as it did in 2003. On the contrary, it has tremendous credit and can afford to lose a little of it.

The world is flush with liquidity, which has narrowed yield spreads between safe-harbor and high-risk assets (and countries, for that matter). Global trends, and mainly tolerance for risk, has sent money flowing to all sorts of weird places with the potential to generate returns. The global investment community tends to feel that Israel confers enough advantages to overcome its inherent disadvantages, such as its security situation.

Yet there are some challenges that make having a good finance minister an essential. The governor of the Bank of Israel, Stanley Fischer (note that Bar-On would be his fourth finance minister) recently advised the government to maintain fiscal discipline. Which means, stay within its budget. Israel can't afford a government that starts spending like money is water.

Also, the good mood in the marketplace can sour within minutes, and suddenly Israel's risk factors will take center stage again. And mainly -until recently we thought it didn't much matter who was defense minister. Look how wrong we were.