Finance Ministry officials are putting together a plan to rescue the real economy from the ravages of the international financial crisis but see no reason at this stage for government intervention in the capital market.
Because of the government paralysis before the national elections in February, the 2009 budget seems to be stuck fast, with next year beginning without an approved fiscal framework.
"Even though the budget isn't making progress, I am determined to promote steps crucial to economic growth," Finance Minister Roni Bar-On told the Knesset Finance Committee yesterday. "The global crisis won't pass over the local economy. Soon [our] economic growth will start to substantially slow down, and I am determined to act to reduce the impact of the crisis on the domestic market."
The ministry's planned steps are designed to stimulate economic growth, which is expected to slow next year, but not reverse into contraction. They include investment in roads and the water system and increased subsidies for corporate research (which is allocated through the chief scientist at the Industry and Trade Ministry).
The ministry also plans to lay out a safety net to encourage banks to resume lending to small businesses.
But Bar-On, though increasing state investment in infrastructure, says the ministry is adamant about not widening the government's deficit.
The plan actually exists only at the idea-in-a-briefcase stage. No details have been thrashed out, but the general guidelines are taking shape. First and foremost is investment in physical infrastructure: roads, train tracks, desalination facilities and possibly pipelines for conveying natural gas.
The ministry doesn't intend to waste time on projects unlikely to win regulatory approval; only projects that are both needed and likely will win its attention.
One thing still in the dark is the Finance Ministry's debt to certain companies under the Capital Investment Encouragement Law. Opinions at the ministry about the law's merits reportedly differ, as do opinions about support the state already owes to certain enterprises that met the criteria but didn't get the check.
The ministry is also reconsidering an old idea: subsidizing wages in peripheral areas around Israel to reduce unemployment in the worst-hit areas and among the most affected communities - the ultra-Orthodox and Arabs.
The Finance Ministry's drive to shore up the real economy is good news for small businesses suffocating from lack of credit. Here a plan has already taken shape: The ministry plans to lay out that safety net for banks, which would guarantee loans banks extend to small and medium-size businesses.
Technically the plan involves the ministry earmarking a sum to serve as security, then holding a tender. It would choose the bank willing to lend the most based on that flat amount of security.
At this stage the ministry is leaning against forcing banks to cap the interest rates they charge on such loans. Its premise is that it isn't the state's job to intervene in the price of credit. It also assumes that the main problem these small businesses face is finding loans, not paying for them.
Since time is of the essence, Bar-On isn't going to get bogged down in controversial structural reforms in the stimulus package.
Addressing the Knesset Finance Committee yesterday, Bar-On said he sees no call for the government to intervene in the capital market at this stage. That said, he called on savers not to make hasty decisions based on the recent terrible monthly returns. "It isn't right to take action based on the yields in one month, quarter or year," he said.
Generally, the public is showing maturity and responsibility, Bar-On said. While long-term savings vehicles such as provident and pension funds had suffered from heavy withdrawals as the financial crisis mounted worldwide, the outflow has slowed in recent weeks to about NIS 100 million to NIS 150 million a day.
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