New Minister of Finance Benjamin Netanyahu plans major tax reforms and multi-billion shekel sales of government companies. The measures are included in the emergency economic plan prepared by Ministry of Finance director general Ohad Marani and Accountant General Nir Gilad, and already submitted to Prime Minister Ariel Sharon.
Netanyahu is an economist with a liberal, market-oriented perspective. He aims for economic independence and Israel’s full integration with the global economy. During his first visit to the US as prime minister in 1996, he consented to giving up US economic aid, then amounting to $1.8 billion a year, in exchange for greater export opportunities to the US. An agreement was ultimately reached to gradually eliminated US economic aid, while increasing military aid.
Under last night’s MOU, Netanyahu will be minister of finance with broad authority and independent powers to deal with economic policy. The absence of full backing by the prime minister will not stand in Netanyahu’s way.
The fact that Sharon has given Netanyahu broad authority and that he will head the social-economic cabinet and ministerial privatization committee will greatly strengthen the finance minister’s position. Ministry of Finance officials and professionals will therefore welcome Netanyahu with open arms.
Netanyahu supports large-scale privatization, deep budget cuts, and far-reaching structural changes and economic reform. He is an enthusiastic supporter of low budget deficits, and will presumably support a NIS 12 billion budget cut in order to achieve the 3% of GDP deficit target. Marani and Gilad have already made a commitment to this effect to the US, which is making a NIS 10-15 billion budget cut a condition to providing loan guarantees.
The Netanyahu government cut the budget by NIS 10 billion in two moves: a NIS 7 billion cut in 1996, and NIS 3 billion in 1997-98. On the other hand, Netanyahu will not halt investment in the territories, nor will he consent to drastic cuts in support for the haredim (ultra-orthodox).
As minister of finance, Netanyahu has a number of advantages over other candidates: he can harness the media to support complex economic measures. He is known as a man who garners headlines.
Governor of the Bank of Israel David Klein, who faced an attempt by the Prime Minister’s Bureau to replace him with Yaakov Neeman two weeks ago, also benefits from Netanyahu’s appointment. Klein will have an easier time working with him - but only up to a point. Ministry of Finance officials are united behind the need to cut the interest rate by gradual and measured steps.
It was clear to everyone that had Silvan Shalom been reappointed as minister of finance, a countdown would have also started. Since Netanyahu supports an independent and indeed strengthened Bank of Israel, the countdown has been aborted. However, Netanyahu will not agree to an interest rate deal with the prime minister of the kind that was made in December 2001. The buck will stop with him.
It is obvious that the Bank of Israel monetary council bill initiated by Sharon and Shalom will be taken off the agenda. Netanyahu can be expected to revert to the format of a five-member monetary council, headed by the governor of the Bank of Israel, who will be the first among equals. The Bank of Israel will have a three-member majority in the council, based on the recommendations of the Levin committee and Prof. Haim Ben-Shahar, which were approved by the Netanyahu government.
Netanyahu will also fully liberalize the foreign currency market and exchange rate. He might also abolish the exchange rate fluctuation band. Netanyahu is very close to former Governor of the Bank of Israel Jacob Frenkel, who might now return to a position of influence over the Israeli economy and policy-making.
Published by Globes [online] - www.globes.co.il - on February 27, 2003