Netanyahu Anticipates 'Enormous Change' in Israel's Economy

As market spirals down, the prime minister announces formation of panel to meet with protest leaders.

Prime Minister Benjamin Netanyahu Sunday announced the formation of a panel of experts to hold a dialogue with the leaders of the tent protests.

Meanwhile, he and Finance Minister Yuval Steinitz both think the downgrade of America's credit rating last week and Europe's economic crisis are warnings that Israel must stick to a fiscal policy of curbing spending and paring down debt.

Netanyahu and Yuval Steinitz - Emil Salman - August 7 2011
Emil Salman

Their concern is great enough that senior treasury and Bank of Israel officials held an emergency meeting on the economy at midnight on Saturday. The atmosphere of anticipation was only heightened by yesterday's stock market collapse, when leading indexes in Tel Aviv plunged 7 percent.

Steinitz, interviewed on Army Radio yesterday, noted that Israel has certain constraints, such as defense spending, which is necessarily higher than the Western norm, and must also be careful not to increase the deficit. "We don't want to be in the situation of Greece, Spain and other countries," he warned.

Netanyahu's panel is to be chaired by Prof. Manuel Trajtenberg, who formerly headed the government's economic advisory council. Netanyahu has not yet decided who else will serve on it.

The panel is to submit proposals for reform to the socioeconomic cabinet by the end of September. That body, headed by Steinitz, will review the ideas and submit its own recommendations to Netanyahu by the end of October. Netanyahu may make additional changes, after which he will submit a final draft to the cabinet for approval. That is supposed to happen in late October or early November.

"I want the government's full backing in the enormous change we are about to make in Israel's economy," Netanyahu told yesterday's cabinet meeting.

The decision to set up a panel of experts replaces the move Netanyahu announced just a week ago: having a small group of ministers conduct a dialogue with the protesters. A panel headed by an outside expert will be less vulnerable to coalition pressures, but will also have less status and authority. Moreover, the fact that it won't submit its recommendations directly to the cabinet or the prime minister, as the panel of ministers was to have done, but only to the socioeconomic cabinet, will both delay the process and make it more likely that the proposals will be altered substantially.

The socioeconomic cabinet comprises 15 ministers - about half the government - from every party in the coalition. Yesterday, it also acquired two observers: Culture Minister Limor Livnat and Minister without Portfolio Michael Eitan, both from Netanyahu's Likud party.

Trajtenberg's panel is slated to include academic experts, businessmen, Bank of Israel representatives, and officials from the finance, industry and other ministries. But so far, Netanyahu has had trouble recruiting people from outside the government: Several people whom he called personally refused, either because they oppose the panel's expected policy line or because they felt it lacked authority.

The Prime Minister's Office, however, said the panel's composition has not yet been made public because it is still making sure none of the members has a conflict of interests. It declined to say when the names would be announced, or how many members it will have, but the assessment is that it will comprise about 10 members, half from the government and half from outside. Netanyahu told the cabinet yesterday that Trajtenberg, who has taken over the job of putting the panel together, will need "a day or two to complete the list of outside experts."

The panel will then start meeting with the protest leaders and various nonprofit organizations.

Trajtenberg, a professor of economics at Tel Aviv University, currently heads the Council for Higher Education's planning and budgeting committee. Under Netanyahu's predecessor, Ehud Olmert, he set up and led the economic advisory council. His appointment to head the current panel is surprising, as he is not considered close to Netanyahu. But it is also a slap in the face to the economic advisory council's current head, Prof. Eugene Kandel.

"I'm attentive to the protest, but we can't satisfy everyone," Netanyahu stressed at the cabinet meeting. "We'll listen to everyone. We'll act sensitively and responsibly ... We'll conduct a real dialogue. We won't present lip-service solutions; we want to bring real solutions. In the end, we'll be judged on our practical solutions."

Indeed, Knesset Speaker Reuven Rivlin said yesterday that the ongoing protests might well lead to early elections.

Netanyahu said that Trajtenberg's panel will submit recommendations on the following issues: "One, a change in priorities, with the goal of easing the economic burdens on Israel's citizens. Two, a change in the mix of tax payments. Three, expanding access to social services. Four, increasing competition and efficiency in the goods and services markets, with the goal of reducing prices. Five, implementing the housing plan we've already launched.

"The panel's recommendations will reflect the need to maintain fiscal responsibility in the state budget," he added. "Such responsibility is especially necessary at a time of economic uncertainty."

Trajtenberg told the cabinet that public frustration is high, but this is also an opportunity to effect real change.

Yet one reform has already stalled: The cabinet yesterday deferred a vote on proposals to open the dairy market to competition because they lacked a majority. And several ministers and government officials said they thought Netanyahu and Steinitz had created the three-stage decision-making process (experts, socioeconomic cabinet, full cabinet ) mainly to buy time, in hopes that the protests will die down in a few weeks. Netanyahu, they noted, is ideologically opposed to a welfare state; he favors the free market and privatization