The Bottom Line / The Opsimist

The February consumer price index (CPI) represents a return to normalcy from the point of view of inflation.

The February consumer price index (CPI) represents a return to normalcy from the point of view of inflation. A rise of 0.2 percent per month means 2.5 percent per year, and this is a resonable rate that will make it possible for the governor of the Bank of Israel to continue cutting interest at the end of the month.

But if we have returned to normalcy from the point of view of inflation, from the point of view of other key indicators - growth and unemployment - there are still differences of opinion.

"It is clear that we have left the recession behind," Finance Minister Benjamin Netanyahu declared on November 17, 2003, and they laughed in his face.

Yesterday, at a conference organized by TheMarker, the other minister in the Finance Ministry, Meir Sheetrit, declared: "The economy is changing direction and the growth rate this year will be higher than what the treasury says; it will be higher than 3 percent." This time, no one ridiculed him, because you can't argue with facts.

This is a difficult day for the ideological critics of the free-market policies of Netanyahu and Sheetrit. They were boosted by a tailwind from the United States in the form of loan guarantees and the revival of the high-tech world, but even Napoleon said, "Give me a lucky general over a good one."

It is a sad day for the Labor Party, which criticized every step and every initiative. They criticized the budget cuts, but the cuts brought back credibility. Although the deficit continued to be high, the public believed Netanyahu that it would drop, and therefore interest rates dropped drastically in 2003 and helped those with mortgages to a great degree.

The ideological critics criticized the layoffs in the civil service, the cuts in marginal tax rates, the cuts in allowances, the war on monopolies and the investment of pension fund monies in the stock market. Nothing was good. But what can one do if there are now results?

But has Netanyahu succeeded in pushing the economy into the desired steady growth, over a number of years, of 5 percent per year? If you talk to businessmen, industrialists, merchants and self-employed workers, they will tell you that sales have dropped. The figures from the supermarkets show lower consumption. Importers cry that sales of cars, furniture, televisions and computers have dropped. Places of entertainment and restaurants have not recovered. The construction sector, an important component of growth, is still bleeding.

The foreign investors are not back and the tourists do not dream of coming to a country where bombings are part of the way of life, and death.

That is why the current growth cannot bring about the desired change. The growth in exports will not lead to steady growth over years at a rate of 5 percent per annum - which is the only growth that can lessen the threatening unemployment rate.

Netanyahu cannot achieve this growth. He still believes that there is no connection between the security situation, the bombings, the war in the territories - and the economic situation.

In his view, there is no need for a diplomatic horizon and hope for an agreement in order to bring about growth. That is where his mistake lies, because he does not take into consideration the element of expectations. That is why his reforms can achieve a certain amount of growth, but will not bring the high and sustained growth over years that we are seeking.