Fischer: Defense spending too high

Stanley Fischer said, "Every Israeli who has served in the army can tell you about the waste and inefficiencies in the IDF."

"Although we lived in Central Africa, the schools were excellent. We received a British education. While studying physics and mathematics, I met a friend who told me about what he learned at the London School of Economics. That's how I got into the field," said Governor of the Bank of Israel Prof. Stanley Fischer, in the opening of his speech at the Institute for National Security Studies yesterday. "The subject grabbed, and that's how I came here."

Fischer warned, however, that although the Israeli economy is in good shape, if the demographic problems continue, there will be problems, that Israel must avoid the Dutch disease from gas revenues, and that defense spending is still too high.

"I just want you to look at public spending as a percentage of GDP. The source of the economic problems in the 1980s was the Yom Kippur War. It's impossible to manage the budget when spending 20% of GDP on defense. Defense spending is now 6.5% of GDP, the lowest level since 1954, and very low in international comparison, which contributes to Israel's growth. The level is going down, but in real terms, defense spending has actually grown. Defense is still the biggest budget item. Every Israeli who has served in the army can tell you about the waste and inefficiencies in the defense establishment and the IDF."

Fischer added, "This year there is especially strong pressure on the defense budget. Including salaries, defense accounts for over 8% of GDP. There are good economic reasons to cut the budget. I know that protecting national security is the most important thing in Israel, but there is no need to exaggerate."

As for home prices, Fischer said, "If we have to choose, exports are more important than the housing market. Exports add 70% value and housing adds just 8%."

As for the deficit, Fischer said, "One of the reasons we succeeded in the 2008 crisis is that we started with a zero deficit. Since 2010, we have not been able to reduce the deficit as we did in the early 2000s, due to global economic problems. There were fewer exports and less growth, which affected the deficit. But what is the problem of a 4.2% deficit? The problem is that we have full employment, there is little unemployment, and we must not assume that there will be faster growth in the coming year, as the US and Europe assume. We don’t have this luxury, which is why we must deal with the budget deficit. Two days ago, Lapid and Netanyahu set a deficit target of 3% for 2013. I think this is a brave and important decision, which if we meet it, will contribute to economic recovery."

Fischer warned, however, "If we enter a recession in the coming year, the deficit could reach 8% of GDP, and we must avoid this situation. I am pleased with Lapid and Netanyahu's deficit target."

Published by Globes [online], Israel business news - www.globes-online.com - on April 24, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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