Senior Economists Warn of Impending Economic Doom

Apocalyptic statements regarding the forecast for the economy and unprecedented criticism of the country's leadership were voiced by senior economists at Tel Aviv University yesterday.

"The government's list of priorities represents an existential danger" - Dr. Danny Ben David; "I have been following the economy for 40 years and do not remember such a problematic period" - Prof. Haim Ben-Shahar; "There is a real threat to the Zionist idea for the establishment of a Jewish state in the land of Israel" - Prof. Danny Tsiddon; "The economy will not be able to bear another year or two of shrinking in every area" - Prof. Leo Leiderman; "The economic collapse will come due to social problems" - Dov Lautman.

These are just a selection of quotes from the harsh things were said at an evening seminar titled "The Economic Policy Required from the New Government," held by the university's Eitan Berglas School of Economics.

All the speakers blamed the dismal reality on the intifada, but noted that it is possible to create a much better socioeconomic situation even under current conditions.

Ben-Shahar compared the economy's current condition with past crises such as the period of hyper-inflation in 1985, the recession that followed the Yom Kippur War and the crises of the 1960s. He said that he has never been so worried.

"The structure of the government and the Knesset is misshapen," he claimed. "The cabinet ministers are not internalizing the needs and the problems, and are increasing the deficit through crazy private legislation and with the help of a lack of leadership by the treasury," said Ben-Shahar, adding that there is currently a budget shortfall of almost NIS 20 billion, which means that the actual deficit is 7 percent of the gross domestic product (GDP) and not 3-4 percent, as the treasury claims.

All the speakers at the seminar heaped praises on the ability of a hermetically sealed separation fence to help stop the shrinking of the economy. A study conducted by the university found that the fence, if it succeeds in preventing terror attacks inside the Green Line, will add NIS 14-19 billion to the GDP per year.

Ben-Shahar said that in order for the fence to be effective, its construction will have to include the evacuation of the settlements that will be left on its eastern side. In any case, he noted, there is currently no political force that can lead to the completion of such a fence, so we have to at least halt the shrinking of the economy "through daring and political courage."

Ben-Shahar commented that the speech by Bank of Israel Governor David Klein last Thursday accurately presented the condition of the economy and cautioned against the dangers inherent therein. Ben-Shahar feels that ousting the governor would be stupidity. "Instead of dealing with the problems, [they want to] decapitate the messenger," he said.

Ben David, whose research reports have succeeded in instilling no small measure of fear regarding long-range forecasts, said that the current situation obligates special consideration of the short term. He feels that the government's contribution to the difficult situation lies in the Finance Ministry's unreliable economic policy and the lack of a political horizon.

Ben David mentioned two areas that are draining the state of substantial resources. The first is the transfer of funds that allows whole populations to refrain from working as a way of life. "Eighty percent of Haredi [ultra-Orthodox] men do not even look for work, and likewise 78 percent of Arab women," said Ben David. He also noted that inasmuch as 50 percent of Israeli children in first grade are ultra-Orthodox and Arabs, there will be no one to finance these transfer payments in another generation. The second area to which the treasury unjustifiably channels massive funding is the settlements, which Ben David believes will be evacuated in the future.

Older and poorer

Tsiddon said that there is no other country in the Western world that is in such a bad state. He declared that if essential changes are not made within two years, the economy would sink to its lowest level since the early 1980s. "We will be as poor as then, but 20 years older," he said, adding that the economy must switch to crisis-management mode. "Anyone who does not understand the severity of the situation should pack his bags and go home."

Tsiddon feels that at this stage there is no point in talking about renewed growth. First we have to stop the shrinking and then make sure a financial crisis does not develop. Rising unemployment must also be quashed. Only then will renewed growth be possible.

"The current slump is not a cyclical phenomenon," said Tsiddon. "The economy has never experienced phenomena like these, so an anti-cyclical policy of increasing the deficit will only push the economy into a much worse situation."

The depth of the crisis and the scope of its problems make it impossible to accept the recommendations in economic textbooks at face value, explained Tsiddon. He suggested that the government consult academic experts, as it did during the 1985 crisis, which was "easier," in his words.

Regarding the steps the government must take, Tsiddon said that public sector wages must be cut: "They are completely out of proportion, even not considering the security situation," he said.

Tsiddon also mentioned the cancelation of the large families law and the Negev law and cuts in benefits to high-priority regions among other steps that must be taken immediately. He added that channeling funding to infrastructure will only help in the long term.

Leiderman addressed the problematic monetary situation currently facing Israel, noting that the financial markets are expressing a lack of faith in the government's inflationary target. He sees no magic solutions to the recovery of the business sector and feels that the high interest rates make growth impossible.

"Instead of approaching the quality of the soccer and the meat in the region from which I came [South Africa - R.S.], we are getting closer to those countries' financial status," said Leiderman, warning that increasing the deficit will endanger the financial stability of the economy.

Lautman, chairman of Delta Industries and acting chair of TAU's executive council, said that renewed growth will be impossible without a political horizon and reforms in the education system. "In the past, Israel's education system was in first place worldwide, but now we have sunk to 32nd place. There are foreign workers whose home countries are beating us in the level of their education systems," he said.

Lautman concluded by saying that the political system must also be changed and that the public sector has to be reduced in size.

"A good manager has to look ahead - but we have no leadership," he said, adding that the impending economic collapse can be blamed on social problems.