The Export Prime Minister

The prime minister was in top form: In festive remarks delivered at last week's Galilee Conference in Carmiel, he roundly praised the export miracle.

The prime minister was in top form: In festive remarks delivered at last week's Galilee Conference in Carmiel, he roundly praised the export miracle. "This year I can tell you," Ehud Olmert declared, "that this is the first time in the history of the state that Israel's balance of payments has been positive, with exports exceeding imports by $6 billion."

"Beside me here is Stef Wertheimer," Olmert continued enthusiastically. "Stef, we have realized the dream about which you spoke: exports, exports and more exports. You told me when I was minister of industry, trade and employment: 'Don't pay any attention to what people are telling you. It's all nonsense apart from exports, exports and more exports.'"

The truth is that 2006 really has been a special year. It will be the first year in which exports exceed imports, by $1.5 billion. In other words, there will be an export surplus. Thus the surplus in the current account of the balance of payments will indeed be $6 billion - thanks mainly to grants from the United States, reparations from Germany and gifts from Diaspora Jewry.

A generation ago, economists believed that economic independence meant achieving an export surplus. We have realized that vision and achieved an export surplus. But have we also achieved economic independence?

Not exactly. The definition of an export surplus as a measuring rod for economic independence was appropriate for years in which the foreign exchange rate was fixed and controlled by the government, which also determined the pace of devaluations. Now, however, the exchange rate fluctuates freely, so there must be a balance between exports and imports, because the absence of such a balance causes the exchange rate to fluctuate and "orchestrate" such a balance over time.

This means that an export surplus no longer serves as a symbol of economic independence. This can easily be demonstrated via a comparison with the U.S., which suffers from a tremendous deficit in its balance of payments (and therefore, the dollar has weakened against the euro). Does this mean that the U.S. is not economically independent, but we are?

Of course not. After all, every so often we go to the American government with a shopping list and request an airlift of goods, special grants, generous loan guarantees or a veto on United Nations resolutions calling for sanctions against Israel. The fact that America supports Israel signals to the world that it is not dangerous to do business with us.

We are therefore very far from economic independence. Our economic situation is still fragile and is very dependent on American support, as well as on the progress of the peace process.

What was particularly funny about Olmert's address, however, was his attempt to take credit for the great achievement of the export surplus. To this end, he even mentioned his actions as industry, trade and employment minister. Nothing could be further from the truth.

The export revolution began in Israel in 1991, when the government opened the economy to competition from imports from all over the world. This openness was the reason that the Israeli economy, which previously specialized in traditional industries such as textiles, wood, iron and leather, switched to high-tech industries, which are pure export industries with high added value. Olmert had no connection with that at all.

Over the past three years, another revolution took place, thanks to Benjamin Netanyahu. He cut the budget, lowered taxes and implemented privatizations and reforms. All these were tremendous growth engines for the private sector and for exports in particular. Not only did Olmert have no hand in this revolution, he opposed every single step proposed by Netanyahu and even proposed some pretty poor alternatives.

Yesterday, in another ceremonial address at Sde Boker, Olmert appealed to the Palestinians, calling on them to "advance toward peace." In addition to promising them various things, he mentioned the tremendous economic benefits that they would reap from a halt to the violence and terror.

But Israel, too, would reap significant economic benefits from halting the violence and terror - because only when peace reigns will we be able to let go of America's apron strings and achieve true economic independence.