The same thing happens every year, but things have gone much further this year. The Bank of Israel publishes its annual report on the state of Israel's economy just before Passover. This comprehensive, thorough, and concise report provides a reliable and usually very accurate assessment of the economy, government policy, and the financial system, as well as a glimpse of current economic trends, such as Internet policy and transportation failures.
The correspondents (including yours truly) have to provide their editors with short, snappy headlines about the final section of the report, which concerns the housing market. The ”Buyer Fixed Price Plan" sub-heading, which appears at the bottom of page 227 in this year's report, is an unfailing source.
The third side of this triangle is Minister of Finance Moshe Kahlon, who also does the headline writers good service. Criticism of the buyer fixed price plan turns the statesmanlike, restrained, and subtle Kahlon into a different person. Things that are ordinarily said only in an undertone behind closed doors will be said about the critic to his face.
Kahlon's first personal attack on Governor of the Bank of Israel Karnit Flug took place after the criticism of the Buyer Fixed Price Plan in the Bank of Israel's 2015 report. On that occasion, Kahlon alleged that Flug had made a NIS 15 billion error when she said he should raise taxes by NIS 8 billion, and he cut them by NIS 7 billion instead. The Bank of Israel tried to learn from this incident. The section about the plan in its 2016 report was carefully scanned to make sure that it would contain only facts, with no judgmental statements. Before the report was published, soothing messages were sent to the minister of finance's office to the effect that the report was positive, and there would be no work to do. The media, however, told a different story. The ministry of finance said that it had been misled by the Bank of Israel.
What do we have here? On the one hand, Flug is being statesmanlike, unemotional, and objective. She is trying to the best of her ability to avoid being dragged into confrontations and political disputes. The super-political Kahlon, on the other hand, has spotted weakness in his rival, who is obstructing him in carrying out measures in which he believes. In the middle are the media, which are hungry for headlines and love a good fist fight, even if it is one-sided.
Flug is keeping mum, realizing that such disputes can only damage the Bank of Israel in the international arena. The Bank of Israel's independence is an important element in Israel's credit rating. Any interference with this independence will not only affect the Bank of Israel's reputation and prestige; it will also force Israel to pay higher interest on its debts.
There used to be someone in the Ministry of Finance who understood this. When Michal Abadi-Boiangiu was accountant general, there was at least one responsible adult on both sides. Back then, quite a few fires were extinguished before doing any serious damage. Abadi-Boiangiu was not there this year, and that may be why the Ministry of Finance's response was so extreme.
To say that the Bank of Israel's criticism is "motivated by interested parties" is unfounded, but is unfortunately no accident. It results from a perspective in which there is no such thing as purely professional criticism. It is an attitude that looks for a conspiracy and a hidden interest behind any criticism, whether by judges, governors of the Bank of Israel, or journalists. This attitude is well-known to those covering the prime minister's affairs, and it is regrettable that Kahlon is headed in this direction.
Ironically, other than in its remarks about the real estate sector, the Bank of Israel's report is very good for the minister of finance. The Bank of Israel praises Kahlon for his social programs, such as the Family Net assistance scheme, and for increasing government spending, and that is unusual. The Bank of Israel pulled quite a few punches in the way its report treats Kahlon. Only by reading between the lines will the reader discover, for example, that future governments will have a serious problem paying for the NIS 12 billion added to the budget annually - the net cost of the additions to allowances for senior citizens and other items that will arrive only towards 2021.
Flug should be criticized for issuing an excessively mild report that is too sparing in criticism of the government and does not refer explicitly to missteps and failures, and does not warn of what is approaching. Only when Kahlon starts pining for Flug will we know that the next Governor of the Bank of Israel is doing a good job.
Published by Globes [online], Israel business news - www.globes-online.com - on April 1, 2018
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