Taking Stock / A Simple, Sorry Tale of Waste and Corruption

Upon his return from a tour of the south last week, the brand-new Finance Minister Ehud Olmert directed his director general, Joseph Bachar, to immediately set up a new panel, partly manned by top treasury and Bank of Israel staffers. The committee's mandate is to consolidate suggestions for a "more balanced" economic policy that would reduce polarization among the population, Olmert explained.

The mission cut out for the panel - to analyze the reasons for the country's poverty - is enormous, complex and noble. It will take a long time, too. While it labors, perhaps Olmert should direct Bachar and national budget director, Kobi Haber, to tackle a few other rather simpler matters, such as finding resources to provide Israel's poor with stronger safety nets.

Here is another simple matter that has not been extensively reported by the media: on the day Olmert planned his southern jaunt, his director general and budget director handed over a nicely rounded check to Israel Military Industries. How rounded? As round as it gets: it completes a billion shekels in subsidies in the last year.

Yet the media hasn't had much to say about that billion shekels. There were, however, a lot of stories about the $300 million deal - "the biggest in the company's history" - that IMI signed with the U.S.

In general, Haaretz archives are stuffed with reports about giant arms deals that IMI has closed with the armies and governments of India, Turkey, United States, South Korea. The company would seem to be striding from one coup to another, so to speak. The Defense Ministry's outgoing director general, Amos Yaron, proudly reported recently that "Israel has sold $15 billion worth of arms in five years," much of which came from IMI and Israel Aircraft Industries.

Petty little minutiae

Of course, there is one pesky little snag: the IMI is losing hundreds of millions of shekels a year. Some of its losses appear openly in its books and some are concealed, like so many things in our sprawling defense establishment.

The one economic datum that exemplifies the story of our IMI appears nowhere. To reach it, you have to add up the Finance Ministry's annual infusions to the company, which over the last decade has totaled, hmmm, NIS 9.8 billion.

How is it that a company losing NIS 10 billion a decade, a company sitting on the priciest prime real estate in Israel, right plunk by Ramat Hasharon, a company paying enormous salaries to its workers - how is it that a company like that continues to draw financing from the taxpayer?

Ask Bachar, ask Haber, ask the Finance Ministry officials over the years. They know.

It is no mistake. It is no oversight. It is not a one-time infusion.

Money has been systematically streaming to IMI, paying for the strategic stupidity of the company's management for over 15 years.

Somebody's a winner

Somebody's been winning from this situation, and it is not only the thousands of people who work at IMI. It's dozens of cronies of those in power, government and defense: it's the consultants, advisers, economists, lobbyists, mediators, former army officers, friends.

It is Israel's economic-military-political junta - people who move within the infamous triangular space of the army/Defense Ministry, treasury/public sector, and politics.

It is convenient for treasury personnel to present the infusions to IMI as a political necessity forced by the political echelon, which trembles before the might of the IMI workers and their representatives in the party centers.

But that is only part of the story. If the Finance Ministry wanted to, it could have defused the ticking IMI time bomb and wound up with much less collateral damage. But the political and defense establishments preferred to defer the end.

Smoke and mirrors

This is how it works. A few months ago, the Finance Ministry gave IMI about NIS 400 million to pay a loan it took from Bank Hapoalim seven years ago.

How did IMI, a bankrupt organization, manage to borrow that much, anyway? By trickery, a well-known mechanism in the public sphere.

In the late 1990s, IMI, which, of course, is owned by the state, transferred some of its land in Ramat Hasharon to the Israel Land Administration for sale. This land was used as collateral for the Bank Hapoalim loan.

Even when the deal was completed, it was perfectly clear to all that it was a delaying tactic. The land belonged to the state anyway; the statutory processes would not be carried out, the land would not be marketed, and at the end of the day, the treasury would repay the loan. Meanwhile, all the parties involved gained a few years' time, during which they made a living, and lots of IMI-affiliated friends and cronies got richer and richer, while the finance and defense ministers avoided a confrontation with IMI workers.

Salaam Ankara

Here is another piece of trickery. The treasury gave IMI another NIS 730 million two weeks ago. Of that amount, NIS 600 million was to pay inflated pension entitlements (NIS 1.2 million per worker, on top of the regular pension stipend) and NIS 130 million for the company itself.

What was the excuse this time? A treasury official told us: We had no choice. If we didn't give the money, IMI's deal with Turkey would have collapsed, and we'd have to pay the $200 million guarantee the state provided to back the deal.

Nice one. We had to pay Bank Hapoalim because a few years back, a treasury clerk approved that tacky deal with the land. Now we have to infuse a few hundred million more because a few years back, some other treasury clerk signed his name to a state $200 million guarantee for a deal with Turkey.

Meaning some clerk in the dim history of the treasury can always be found to shoulder the blame for today's massive infusions. The next time IMI starts to fold, when the treasury hands over another billion shekels, its mouthpiece on duty will explain how a few years back some treasury clerk signed his John Hancock to some insanely stupid commitment and now he has no choice but to pay up.

The bottom line is perfectly simple. The IMI, an enterprise chronically in the red, is utterly dependent on state handouts, and will continue to live that way, sucking hundreds of millions from the state teat each year. Its thousands of workers will continue to receive salaries and pensions that their counterparts in the public sector can only dream about. And related top officialdom in Jerusalem and former generals also will continue to live off the fat of the land; when it comes time for more budget cuts, slashing stipends to the poor and elderly, they will shrug and explain: no choice.

Now take this sorry story of IMI and multiply it by 10, or 20, and you have the entire story of Israel's defense establishment and army.

Double it, and you have the story of the waste and corruption at the major ministries - education and welfare.

Then you will understand the magnitude of the lie that finance ministers and their minions market without stopping: that there is no money.

There is money, a lot of it. The problem is that the people controlling the faucet find life more convenient when it streams to the strong and powerful close by, not to the poor and needy somewhere else.