"What is needed is a conservative, responsible policy that can increase growth and employment in 2003," senior Finance Ministry officials told cabinet members this past week in a campaign to convince the government to support the treasury's new cutback program. The program deserved support, and the government did the right thing in approving it, since it is a rescue plan designed to prevent the economy from sliding into an Argentine-style financial crisis. At the same time, the program is not a plan capable of shifting the Israeli economy from its current crisis to a rosy horizon of growth and a lower unemployment rate.
It should be pointed out that there is no economic program on earth that could prevent the deep economic crisis toward which Israel is heading. The economic situation is steadily worsening. The hotels are miraculously holding on, the building contractors are recycling their debts with the banks without any clear idea as to how they will ever repay those loans, the self-employed are facing the prospect of a deep credit freeze that might force them either to downsize their economic activities or to shut down their businesses altogether, and the country's major companies are reducing operations and laying off staff. Given this situation, the unemployment rate is steadily climbing.
If we took a close look at the press releases received by a single journalist during a single working day, we would discover an entire series of doomsday messages: the Israel Export Institute reports a 20-percent drop in the export of manufactured goods to the European Union; the Israeli Association of Plastic and Rubber Manufacturers announces that the first half of 2002 was the worst first-half period in a decade, with 400 layoffs, a four-percent dip in sales and an eight-percent slump in exports; the Central Bureau of Statistics reports that hotel accommodations in the first half of the year dropped by 13 percent compared to the first half of 2001 and by 37 percent compared to the same period in 2000.
Our international stature has never been worse. The Israel Philharmonic Orchestra was forced to cancel a concert tour in the United States and, a month ago, 360 members of youth orchestras and dance troupes had to unpack their bags because the organizers of a festival in Cyprus told them that they were not welcome. Israeli physicians and scientists are given icy receptions at international conferences. Cyprus was unwilling to host the Maccabi Haifa soccer club and only massive pressure led to a reversal of that decision. The response of Moshe Teomim, owner of Hapoel Tel Aviv: "The problem is only going to get worse. We are losing a large portion of the moral justification that we used to have, and we are slowly becoming a pariah that the world wants to distance itself from."
This situation generates fear and gloomy projections, which will mean that the level of the economy's activities will continue to drop over the next few months. Similarly, revenue from taxation will continue to shrink. Which will, in turn, mean that the Finance Ministry will have no alternative but to present an additional program of cutbacks in early 2003 to meet the target of a three-percent deficit in the state budget - a precondition that must be in place in order to prevent an immediate financial crisis - and the next program of cutbacks will be tougher than the present one.
This inevitable process can be stopped only if we place our finger on the real problem: The war in the territories and Palestinian terrorism. Israel's economy can never hope to recover as long as Palestinian terrorism hits deep in the heart of the country. This terrorism leads us to "keep our heads down" and causes a slump in business activity, generating yet a further slump in our standard of living and a further increase in the unemployment rate. However, the Israeli government is feeding the flames. Its answer to terrorism is to use more force and more bombs, to eliminate more key Palestinian figures, to impose more closures and to deport more Palestinians. In carrying out these actions, Israel is not reducing Palestinian terrorism; quite the contrary, Israel is merely intensifying it.
Prime Minister Ariel Sharon is not interested in political negotiations with the Palestinians. He is not prepared to adopt the Clinton plan, or the Saudi plan, or even the latest plan formulated by U.S. President George W. Bush. Instead, Sharon is saying he will accept these plans only if certain conditions are met - conditions that will only prevent any form of peace negotiations. When the other side has no political horizon to look forward to, when it has no hope, and when it sees more and more poverty and humiliation on its turf, the terrorism will only increase and intensify.
As long as the Israeli public fails to understand - and to internalize - the direct link between peace and economics, it will continue to seek miracle cures in the wrong places. The impressive economic growth of the mid-90s was generated primarily thanks to the Oslo agreement of September 1993, which restored hope in our daily lives and channeled to Israel billions of dollars from foreign investors - dollars that enabled the economy to enjoy a rapid pace of growth and which caused our standard of living to rise and our unemployment rate to plunge dramatically.
Thus, the economic program that is really needed, the only economic program capable of extricating us from the present crisis, is a political program that will restore hope to both nations. This program is possible even today, despite the grave security situation. The only problem is that this country's leadership lacks the courage to take the risks needed and to navigate a new course.
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