Israel's temporary Minister of Finance now is Benjamin Netanyahu, in case you hadn’t heard. The possibility of Minister of Transport Yisrael Katz being appointed to the post until the elections was mentioned last week, but as of now, this has not happened, due to opposition from other Likud ministers to Katz's appointment. It now appears that Netanyahu will retain the portfolio himself at least until after the Likud primaries.
Ministry of Finance director general Yael Andorn was appointed 18 months ago by former Minister of Finance Yair Lapid. The announcement that he had been fired caught her on her way back to Israel from a meeting with the governor of the Norwegian central bank, a meeting also attended by senior Bank of Israel officials and members of the Israel National Economic Council. The purpose of the meeting was to learn from the Norwegian experience in setting up a sovereign wealth fund for natural gas tax revenues. If Andorn has positive or negative feelings about Lapid's leaving his position, she is keeping them well hidden. As someone who has served in all of the major Ministry of Finance positions, Andorn is considered a professional appointment by Lapid, who did not know her previously. Her message is that work at the ministry will carry on as usual until a new minister takes up the post.
The Ministry of Finance is well aware that no significant changes or reforms can be expected without a permanent minister or a functioning Knesset, and with a temporary government whose every decision requires approval from the Attorney General. Nevertheless, work is continuing in all aspects that do not require a decision by the political echelon. Today, for example, senior ministry officials will meet to begin discussions on the work plan for 2015. "There is no atmosphere of relaxation at the Ministry of Finance," Andorn says. "I'm glad that the Ministry of Finance has a very professional team of employees, whose job it is to maintain a stable economic policy. Business is continuing as usual."
"Globes": What can you do without a Knesset, and with a transition government?
Andorn: "As far as we're concerned, we're devoting the coming period to work on the future action plan in all the matters that must be addressed. Our goal is also to prevent the professional work that has been done from being wasted, and the government can also begin operating in places where it wants to."
The Ministry of Finance believes that progress will be made soon on items that do not require legislation, such as raising the minimum wage and implementing the recommendations of the debt arrangements committee led by Andorn. The prices committee's recommendations on natural gas prices control, the recommendations of the committee for considering changes in the Law for the Encouragement of Capital Investments (headed by Andorn), and arrangement of supervision of investment houses is expected in the coming weeks. At the same time, the Ministry of Finance is promoting various initiatives in the context of the overall plan for lowering the cost of living, such as encouragement of non-banking credit groups with financing from investment institutions and with state aid.
"We're continuing to formulate a broad plan of structural changes and reforms to bolster competition, which deals with a large number of factors," Andorn says. "In this framework, there will also be measures on the subject of non-banking credit agencies. We have already been working on a strategy in this matter for 18 months."
"Globes": What if the new Minister of Finance decides that he is not interested in the cost of living?
Andorn: "Obviously, any new Minister of Finance will set his own policy, but our job is to prepare a toolbox and operating plans in the various areas, and create infrastructure for carrying them out."
Do you know already whether the 2015 budget will be for two years?
"That will be up to the incoming government. In 2013, the incoming government decided not to prepare a two-year budget, and to submit a budget for the rest of 2013 and 2014. The difference is that this time, we're in a position in which the 2015 budget has already passed its first reading. In 2013, there wasn't anything on the table. We'll prepare the infrastructure for the next budget, including the frameworks."
Are you under pressure to distribute the surpluses remaining from the 2014 budget?
"Like every year, adjustments are being made in the budgetat the end of this year, and their scope this year is similar to other years. We expected to finish 2014 in the area of the 3% forecast."
Until a new budget is drawn up, the country will be managed each month according to the 2014 budget, divided by 12. The Ministry of Defense feels that it is especially victimized by this arrangement, because its original 2014 budget was only NIS 51 billion, but it eventually exceeded NIS 70 billion, with the help of many budget transfers, mainly for the purpose of reimbursement for the cost of the fighting in Operation Protective Edge.
Is the Ministry of Defense is expected to demand billions more each month, beyond its share of the original 2014 budget?
"The Ministry of Defense will have to fit into the general framework. That is the price of a continuity budget."
The meaning of a 1/12 budget is that state spending will not be increased beyond the 1/12 fiscal rule, at a time when the economy is still recovering from negative growth in the third quarter and the inflationary environment is negligible.
It seems like the temporary budget will not encourage growth.
"The government's regular activity will continue as usual," Andorn says. "It is true that this structure restrains spending. On the revenue side, some of the changes that would have reduced revenues are not being implemented (this refers to the VAT exemption for purchasers of first apartments, A.B.). We still expect the 2015 budget deficit to be lower than planned, subject to the political decisions taken after the elections."
In its announcement published last week, the Moody's rating agency also cited the fact that the deficit is likely to be lower, but Moody's added an ironic comment that this was the result of an "accident," meaning early elections, not of a successful fiscal policy. Indeed, Andorn's "business as usual" message is aimed not only internally at the Ministry of Finance, the government, and the economy, but also outwardly at the international capital markets, which are showing the first signs of nervousness, following the slide in government bond prices. Moody's announcement also included harsh statements about the lack of stability in the Israeli political system, which the rating company believes is detracting from Israel's ability to plan and implement a long-term fiscal policy.
What did you think about Moody's announcement?
"Moody's announcement concerned the overall economic uncertainty resulting from the elections, which to a large extent is an exogenous event. It's clear that elections are significant for the economy. The announcement does not mention any change for the worse in the economic indicators. I'm not talking about their comment about governmental stability, but the economic consequences. I don't think this announcement is anything new for anyone familiar with the economy here."
The International Monetary Fund (IMF) also visited here last week. What impression did it get?
"The IMF took positive note of the growth rate in employment in Israel, and the growth rates here, which appear very good, in comparison with the rest of the world. For us, it was a very successful visit."
Published by Globes [online], Israel business news - www.globes-online.com - on December 18, 2014
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