Economists: Netanyahu can’t hog credit for growth

“Sectors unrelated to the budget cuts contributed 2.5% to GDP growth.”

Leading government economists and academics are displeased by the personal credit former minister of finance and Likud chairman MK Benjamin Netanyahu is taking for Israel’s rapid 6.6% growth in the first quarter of 2006.

“Who says this growth is Netanyahu’s? What about the disengagement [from Gaza] and the recovery in high-tech?” asked the economists. “Growth lags behind economic policies. Much of the credit belongs to Netanyahu, but the growth isn’t his alone, it also belongs to the government and the Ministry of Finance.

“The growth also belongs to former Governor of the Bank of Israel David Klein, who urged the government to implement austere fiscal policies, cut welfare payments and reduce the public debt, which made possible an expansive monetary policy, a low interest rate, and a real depreciation of the shekel. This boosted exports.”

In retrospect, the Bank of Israel also supports giving credit to former Prime Minister Ariel Sharon in this argument. Chapter 2 of The Bank of Israel Annual Report for 2005, published in March, “Output, Uses, and Principle Industries”, states, “The boom in economic activity resulted mainly from relative quiet in the security front and from strong growth in the world economies, matched by a continuing recovery of the international high-tech sectors.”

In a letter dated April 2 to the cabinet and Knesset Finance Committee, Governor of the Bank of Israel Prof. Stanley Fischer said, “The economy’s growth rested on a number of favorable underlying conditions: ongoing solid global growth; the improvement in Israel’s security situation; and continuous implementation of an economic strategy that supports sustainable growth.”

Calculations by the economists indicate that booming sectors in the first quarter -water and electricity (27%), financial and business services (28%), and tourism (41%) - contributed at least 2.5% to GDP growth. “This bore no relation to the cuts,” they said, adding, “Tax cuts for the rich are not a structural reform, but a redistribution of income.”

The economists disagree about the direct and indirect contribution to the economy by the ease in the security situation, or whether it was greater than the budget cuts. They said it was not yet clear whether the first quarter figures reflect more rapid economic growth, or a technical correction to the growth in the two preceding quarters. The disengagement plan was carried out in August 2005, but part of the investment in the disengagement plan and construction of the separation fence were recorded in the first quarter of 2006.

Published by Globes [online], Israel business news - www.globes.co.il - on May 18, 2006

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006

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