Taking Stock / Bang!

We saw it coming.

The budget deficit for January, announced Tuesday afternoon, was worse than the blackest forecasts. The government posted a deficit of NIS 2.7 billion for the year's first month, after five consecutive years of handsome surpluses in January.

The mammoth January shortfall pretty much validated grave suspicions in the capital market - that the top Finance Ministry bureaucracy had made a coordinated effort to gussy up the government's books for 2002 by means of deferring expenditures and various other accounting gambits.

The treasury denies all, of course. Accountant-General Nir Gilad, who took the credit in January for the government meeting its 2002 deficit target, served as the treasury's front-man to explain the miserable figures for January.

The remarkable deficit, Gilad said, was due to sliding tax revenues and the fact that this year, uniquely, the ministries were operating with approved budgets, so their spending was higher.

The NIS 3-4 billion gap between the surplus in previous Januarys and the deficit posted for this January arouses a suspicion - namely, that what happened yesterday is that creative accounting by the treasury blew up in its face.

Seeing pink elephants

Gilad's explanation that the deficit ballooned because the government actually has an approved budget is comic to the point of sounding delusional.

Here is what our accountant-general is telling us: I have an elephantine deviation in January because I'm working with a budget approved under law, whereas we became accustomed to operating without one in previous years.

The January deficit indicates not only that the treasury indulged in accounting acrobatics in order to gussy up its 2002 financial report. It also signals that 2003 is going to be horribly like the previous year. The treasury again delivered a hopelessly unworkable budget, utterly detached from Israel's economic reality. Ergo, the government's chances of meeting its deficit target are about zero.

Fear of reactions by the financial markets, the rating agencies and the press impelled the Finance Ministry to run a hysterical public relations campaign in the last couple of weeks regarding its grandiose "plans" to cut the budget, to streamline the public sector, to fire civil servants, and to implement structural reforms.

Way to go, treasury officials - do it, put your money where your mouthpiece is. But why did these plans wait until now? It was painfully clear that the budget you delivered was completely irrelevant six months back. The state's revenues from taxes were already collapsing. Why did you wait for February 2003 to come to and announce stringent budget cuts?

Why did you wait until the elections were over to present the horrible figures about Israel's economic condition and the urgent need to cut the budget? The vested interest of your minister to sit on the bad news until the polls were closed is clear enough. But why did you once again consent to help to conceal the real economic situation and the irrelevancy of the budget you submitted to parliament just half a year before?

Meanwhile, back at the conglomerate

An hour after the frightening January figures were made public, a forum of 50 business leaders held an emergency meeting, after sending a letter to the prime minister, and to the leaders of the Labor Party and Shinui. In their missive to Sharon, Mitzna and Lapid, they warned that unless the government implemented an emergency economic plan, the economy could collapse.

Although the mobilization of the business leaders is crucial, the joint letter they fired off to the prime minister, and the massive pressure they're applying for the establishment of a unity government, raises some questions.

Firstly, it isn't clear from where comes their yearning for a unity government. Haven't the last two years proved how useless unity governments are on economic issues? Why do they think a new one would be any different?

Secondly, in the letter, Yossi Rosen - CEO of The Israel Corporation and chairman of the Clubmarket supermarket chain - lists the reasons for Israel's economic slowdown: the global recession, the technology sector crash, the crisis in the financial markets, and the Palestinian uprising.

For some reason, Rosen omitted one thing - the government's unsound economic policy, which was based on its insistence on jamming its head in the sand and ignoring the changes in the local and global economic climate.

It wasn't that he'd forgotten about it. In private conversations, Israel's business leaders rail at the prime minister and finance minister, but they shy away from slamming them in public. In meetings with the prime minister, it's grins and back-slapping all the way.

Which is no surprise: The worse Israel's recession becomes, and the more Israel is disdained around the world, the greater the business leaders' dependence on the politicians.

Take Yossi Rosen, for example. Just two months ago, he, the prime minister and the treasury chiefs agreed to extend licensing for Oil Refineries, which is co-owned by The Israel Corporation and the state. Rosen couldn't really afford to trash the functioning of the prime minister or treasury after that.

But the business leaders have little to fear from the Bank of Israel; and in their letter, they did not forget to mention the need to "set a framework for interest" and to adapt it to "global levels."

Exactly how do Rosen and his associates think a "framework" can be set for interest rates, or how they could be lowered to global levels? Have they completely forgotten that real interest rates in the marketplace derive mainly from the massive government deficit, on the one hand, and from the need to shore up financial stability and prevent a race for dollars, on the other?

Before a massive campaign rooting for a unity government and for lower interest develops, perhaps our business leaders need reminding just how well the last unity government did. They should also recall that we're still licking the wounds inflicted by the Bank of Israel's last attempt to lower interest rates.