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October 1, 1999/21 Tishri 5760, Vol. 52, No.5
Economic experts urge Israel to make changes
AVI MACHLIS
Jewish Telegraphic Agency
JERUSALEM - The captains of Israel's economy this week told world economic leaders at the annual conference of the International Monetary Fund that Israel's sluggish economy is set for a revival after a three-year slowdown.
Rosy government forecasts have been backed by a series of recent reports issued by leading financial analysts, who see Israel's economy pulling out of the slowdown that has pushed unemployment up to nearly 9 percent since 1997. But at the same time, some economic experts are warning that despite signs of an upturn, the prospects of Israel enjoying sustainable long-term growth are unlikely without a serious change in the composition of the budget and the political framework that creates it.
Speaking to the Ha'aretz daily newspaper from the Washington conference, Avraham Shochat, Israel's finance minister, said he believes Israel has turned the corner. "One cannot say for sure that we have already reached rapid growth," Shochat said. "I feel that we're past the lowest point. It depends on a lot of factors but there are definitely positive indicators."
Shochat said he believes the economy will grow at about 3 percent next year. Israel's gross domestic product - the total amount of goods and services produced in an economy and a standard measure of economic growth - grew only about 2 percent in both 1997 and 1998, and a mere 0.3 percent during the first half of this year. In contrast, the gross domestic product grew at a rapid rate of about 6 percent a year during the mid-1990s.
Shochat's optimism was confirmed by reports released last week by Salomon Smith Barney and Morgan Stanley Dean Witter, two leading investment banks, which argued that Israel's credit ratings should be raised. These ratings are measures of an economy's overall status and stability, and higher ratings can help a country raise funds at lower interest rates.
Both reports cited Prime Minister Ehud Barak's recent election, and his determination to forge regional peace and to maintain stable economic policies. Salomon Smith Barney said Israel's leaders have decided "that the country's future lies in deeper and broader integration with the world economy."
The reports were referring to the Israeli Cabinet's decision to approve a budget for the year 2000 based on cuts of about $1.4 billion to projected spending for next year. This allayed fears that Shochat, who served as finance minister under the previous Labor-led government from 1992 to 1996, would continue his previous policy of high government spending, which fuels inflation.
When Knesset members and ministers return from their Sukkot vacations next week, the annual budget slugfest will begin. The budget is scheduled to be raised for the first of three parliamentary readings by mid-October, and must be approved by year's end.
Even if the budget framework is reasonable, critics say, political pressures prevent a distribution of funds to sectors that can boost the economy. The way to boost growth, they say, is not a matter of how much is spent, but how it is spent.
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