Facts show cause for optimism

CARL ALPERT

Decline in exports, reduction in foreign investment and a sharp rise in unemployment are obvious indications that the country has been in the midst of a serious recession.

One does not have to be an economist to identify the major causes of this situation. Perhaps foremost are the security problems, the continued terrorism and the elusive prospects for peace with our neighbors. A second factor embraces the economic policies of the government. A further cause is a reflection of the global economy. All of these combined tend to undermine public confidence and lead to caution and conservatism.

The result is the creation of a negative public mood that builds up into what we call a recession, and at its worst, a depression. External factors could change that mood, but lacking such encouragement, only a gradual process of internal psychological encouragement can gradually lead to hope, confidence and economic revival.

The recent news from Israel is providing numerous sparks that could well lead to such a change. Minute in themselves, they may well add up to a reversal of the otherwise gloomy mood and encourage public confidence.

Thus, we are informed that the international rating agency, Fitch, noting government reforms and improved economic indicators, has upgraded its rating on Israel's long term foreign currency from negative to stable. Israel's Central Bureau of Statistics reports that the country's trading surplus for the first nine months of 2003 was $400 million, compared to an $800 million deficit in the same period of 2002.

According to press reports, a delegation from the International Monetary Fund that visited Israel recently reported that "the protracted decline in economic activity since October 2000 has given way to an incipient recovery led by external demand."

The local Manufacturers' Association, studying the prospects, expects that in the coming year the economy will expand by 1.5 percent, investments will grow by 6.26 percent and industrial exports will rise by 5 percent.

Further, industrial exports in the third quarter of 2003 rose by 1.5 percent to $19.1 billion, in contrast to a 5 percent fall in each of the past two years. The country's Gross Domestic Product rose by an annualized 22.7 percent in the third quarter of 2003 after contracting by 1.7 percent in the second quarter and 2.8 percent in the first.

Eli Horowitz, chairman of the highly successful drug firm, Teva, pointed to what should follow. Everyone's confidence in the economy must be vastly increased, he said. The depressed national mood is a central factor in the lack of growth. Finance Minister Benjamin Netanyahu had already proclaimed that the recession was over. Israel Harel, writing in Ha'aretz, reported that studies presented at the Herzlia Conference prove that there is a high degree of optimism among the public with regard to the future. What Saul Singer in The Jerusalem Post calls the "ecstasy index" (in contrast to the "misery index") must be given priority in government planning.

As the year 2003 approached its end, the Bank of Israel reported that the S Index (State of the Economy) rose in November by 0.3 percent, the third consecutive month of growth. Not all figures were positive, to be sure, but the signals add up to a gradual recovery of the economy.

All set for a change in the economic climate?

One element has been overlooked: Israeli politics. Opponents of the Sharon/Netanyahu government could not bring themselves to add their voices and their support to the ground swell of optimism. Instead, they have hit all the negative notes and trumpeted their objections. It is premature to call the recession history, they say. Success of big firms? Any parallel between their results and the situation of Israel's economy is purely coincidental. Israel is still despondent. Netanyahu is making twisted, misleading speeches. The treasury is deceiving the public with promises of miracles, they say.

All this despite the facts, and despite the need to add to the growing public confidence. Only time will tell if they will have succeeded in puncturing the mood leading to economic growth and stability.

Carl Alpert is a free-lance writer living in Haifa, Israel.

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