Hapoalim CEO: New gov't must restore fiscal credibility

Zion Kenan: Without faster growth, it will be difficult to deal with the many issues waiting on the new government's agenda.

"The establishment of a new government is a great opportunity for policymakers to set a multiyear economic strategy that will return our economy to a growth environment close to its potential, while restoring fiscal discipline, dealing with the problem of housing prices and Israel's other social issues," Bank Hapoalim (TASE: POLI) president and CEO Zion Kenan told "Globes" at the World Economic Forum in Davos today.

"As part of this strategy, it is important for the government to hold an intensive dialogue with the business sector, and for it to participate in the government's discussions and decisions. The business sector has a lot to contribute with ideas for new initiatives and policy measures," he continued.

"The Israeli elections were of great interest at the meetings I held, although everyone knew that only after a new government is formed on the basis of the election results will it be possible to assess what its economic policy will be," said Kenan. "The meetings at Davos highlighted for me three issues which will challenge the next government: economic growth, the state budget, and the housing problem.

"There has been a worrying sharp slowdown in Israel's growth rate in recent months, which is reflected by almost every monthly indicator, including Bank Hapoalim's Israel Purchasing Managers Index and Consumer Confidence Index. Furthermore, many people in the business sector are in a holding pattern because of the high uncertainty, including about regulations. We believe that the economy is growing at 2% a year, a quite low rate, which we must not accept."

Kenan warned, "Without faster growth, it will be difficult to deal with the many issues waiting on the new government's agenda. I believe that the right policy, and after reducing the uncertainty over the business sector, Israel can resume growth of almost 4% in 2014."

As for the huge 2012 budget deficit, "Overshooting the deficit target was the central topic of my conversations at Davos. Global investors' working assumption is that the new government will take the necessary steps to bring the government deficit back below 4% of GDP and to ensure that the decline in the debt-to-GDP ratio will continue. As for the capital market, it is important to strengthen fiscal credibility by a government commitment to clear and transparent measures which will signal the restoration of discipline in the deficit and public debt.

"The third main challenge is to deal with the problem of Israel's housing prices. Almost every young Israeli couple faces a housing problem, which is a critical social problem. The issue appeared on the platform of almost all the parties. Everyone agrees that the housing supply has to be increased, especially after the worrying drop in housing starts in the past few months."

At the global level, Kenan said that the mood in Davos was more relaxed than in the past, even though the global crisis which began in 2008 was still far from over. "It seems that the threat of the breakup of the eurozone in the near term has greatly receded in the past year. The messages from the EU, the European Central Bank, and the IMF were and remain that the breakup of the eurozone is out of the question, and that every measure will be taken to keep it intact."

Kenan added that while the US has not yet solved its fiscal cliff and debt ceiling problems, there is optimism about the US economy, mainly based on the latest macroeconomic figures which show that the recovery is on track.

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

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

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018