Taking Stock / Replace the Chairman of the Board

Israel's business leaders have kicked off another campaign in support of a national unity government. The president of the Manufacturers Association, Oded Tyrah, yesterday called on the leaders of the big parties, in an emotional letter, to establish a broad-based unity government capable of halting Israel's rapid economic decline. Their adhesion to the concept of national unity coalitions is bizarre. These are supposed to be people who know how to evaluate results, bottom lines.

Perhaps they need to be reminded that in the last two years, it was a unity government that handled Israel's economic issues, it was a unity government that led the economy to the fastest economic decline in Israel's history.

The unity government's failures went beyond diplomacy and security, aggravated terrorism, the public's eroding sense of security, and the gradual eradication of tourism and foreign investments. The unity government was also responsible for irresponsible, arrogant macroeconomic policy that disregarded every warning, disseminated baseless forecasts as it trudged on, and focused more on spin than actual handling of real economic problems.

Why should we expect the next unity government to be better? Why should we expect it to deviate from the paralysis and indifference that characterized the economic policy of the last one?

Associates of Prime Minister Ariel Sharon say he grasps the gravity of Israel's economic situation, and means to grapple with the problem seriously. But we heard that already six months back, when the marketplace was sailing toward financial crisis.

Sharon came to his senses, for a moment. He declared budget cuts and abolished private legislation. But the moment a certain fragile stability had been restored to the financial markets, he abandoned the economic arena again. In the last three months, the economic deterioration has resumed in full force.

Pundits will try to convince the prime minister to support their ideas through the press - to cut the budget, invest in infrastructure and education, reduce transfer payments and subsidies, all the usual remedies. The problem is that no government has ever shown the slightest sign of adopting any of them.

But the first, most important step the prime minister has to take, is to appoint a finance minister. With the elections barely over, it's too soon to hazard guesses. The next finance minister might hail from Likud, or possibly from Labor or Shinui. But one thing is crystal clear, and that is who should not be finance minister, not again.

The last year taught Silvan Shalom a lesson in macroeconomic management. He grasped the limitations of his job, and the restrictions imposed by the financial markets on the government. Shalom of the last half-year was more cautious and clever than the Shalom who arrived, wreathed in smiles and self-importance, at the treasury at the start of 2001.

But the public in general, and the business sector in particular, has lost faith in the sincerity of his intentions and in his strength of mind. Shalom proved his credentials mainly as a political animal, savvy at extracting himself from sticky situations, a man who knows how to climb high in party primaries.

There is not one major businessman who supports him as finance minister any more. There is not one major business figure who fails to slam his performance as finance minister, in private conversation. And there are precious few business people, even among Likud's supporters, who want to see him back at Israel's economic helm.

Appointing a new finance minister would be the prime minister's first step toward proving that he sincerely means to tackle Israel's economic problems, and to restore the faith of the public and the business sector in government policy. The public's faith in the finance minister and in government policy is more important than ever before. The financial markets are wide open and the public can vote with its feet at any time.

It isn't only a question of the public buying foreign currency and sparking rapid devaluation, as we saw last year. It is a question of the public continuing to finance the government's tremendous deficits. The government's huge deficits and inability to raise more capital abroad increase its dependency on the public's willingness to finance it - to buy Israeli government bonds, without the incentive of soaring prices.

The steep climb in the government's cost of capital in the last year led to a grave credit crunch, threatening all the companies financed by foreign currency. And more major corporations than ever before are leveraged to the hilt.

For our company, the State of Israel Incorporated, to be free to raise capital and recycle its debts, the chairman of the board has to replace its CEO. And the market, believe us, will know how to appreciate it.