The Bottom Line / Fine, Except for the Price

The best part about the Finance Ministry's new recovery plan, the one that is replacing the last growth plan, is the serious effort it invests into increasing the credit supply. The treasury is putting up more than NIS 22 billion to encourage the granting of credit: NIS 12 billion in guarantees for the banks to raise capital; NIS 6 billion in credit insurance for exporters; NIS 2 billion in guarantees for high-tech companies; and doubling the fund for providing credit to medium-sized firms.

This is triply good news. First are the large guarantees for encouraging credit. Next is the fact that these huge sums are being provided as guarantees only, and not money from the budget - as in the previous leveraged investment funds plan. Third, the corporate bond market is absent from the new plan.

NIS 22 billion in guarantees may be available to various channels, but it's not going to the companies that got themselves into trouble in the bond markets. The leverage funds plan and the Goshen plan are both off the agenda, after the Finance Ministry decided the bond markets are doing just fine on their own.

The new plan finally puts paid to the uncertainty over the official state policy regarding the bond market - in other words, will we bailout the tycoons or not? This will likely get the bond investors off the fence and send them back to do what they should: Invest in non-bank credit with their own money, not taxpayers'.

The best thing about the credit guarantee program is its certainty. The many sections in the recovery plan include only two parts that are clear and definitive, down to their budgets: the guarantees and the tax cuts.

The rest of the plan includes a wide variety of important sections, but all are conditional - and all depend on the budget to pay for them.

The Finance Ministry has a long list of infrastructure projects it would be happy to invest in: transportation, tourism, water and many other sectors. But which will actually be built? It is directly linked to the question of how much the treasury will be able to cut from other parts of the budget.

This is also the weakest link in the plan the Finance Ministry presented yesterday. It has everything, except for a price tag.

The plan is filled with goodies, important and detailed investment ideas. It expands the negative income tax and the Wisconsin "welfare to work" plan to the entire country, it has a fund for distressed companies in the periphery, it provides tax breaks for Israelis returning from abroad, increases the number of subsidized daycare facilities for working women, and increases the Chief Scientist's budget by hundreds of millions of shekels. However, it has absolutely no means to finance these goodies.

As we all know, Israel is already in bad shape, with a forecasted NIS 42 billion budget deficit for 2009, and in any case the cabinet will have to make enormous cuts in the 2009 budget. It will be very hard to make these cuts, and a hundred times harder to increase the cuts to pay for the needed infrastructure investments.

Prime Minister Benjamin Netanyahu has at least taken this particularly ambitious mission on himself: He must square the circle with a massive budget cut while increasing investments in infrastructure and human capital, and lowering taxes.

Is this Mission Impossible? That will be the real test of the new economic plan.