The Bottom Line / A Soviet collapse

[bemildred]

The Finance Ministry is in a tizzy. On the one
hand, there are threats of a mega-strike starting
Monday. On the other hand, the Knesset is slated
to start debating the 2004 state budget on Monday,
while in the background, the Defense Ministry is
demanding another NIS 500 million, the September
consumer price index was 0.5 percent, there is
serious concern that next year's tax revenue will
fall short, growth is staying stubbornly hidden,
and there are worrisome early signals of
deflation.

A year ago, in the preparation
of the 2003 state budget,
there was lively debate on
the size of the deficit, in
light of the Israeli
economy's well-documented
problems. The Bank of Israel,
treasury officials and most
economists were pushing for a
low deficit of 3 percent or
even lower. A few economic analysts, two of
whom now sit on the Bank of Israel advisory
council, recommended a higher, carefully
regulated 4-5 percent deficit, in light of the
problems. The central bank's governor and
treasury heads warned that a high deficit could
cause economic collapse, return Israel to the
age of high inflation, and more. They won. The
cabinet and the Knesset ratified a 3 percent
deficit target. The deficit in practice in 2003
will be twice that, at 6 percent. And the sky
isn't falling.

---

MIT economics professor Lester Thurow said at a
conference a month ago that Israel is not
likely to collapse suddenly Argentina-style,
but a creeping Soviet Union style
disintegration. According to him, "The Soviet
Union also had a powerful, excellent military
alongside a terrible financial situation.
Today, it doesn't exist anymore. A modern
society cannot exist on a huge army alone." He
also recommended Israel increase investment in
research and development.

---

Finance Minister Benjamin Netanyahu's first
emergency treatment for the drop in buying
power may signal the beginning of a change in
treasury thinking: an additional net NIS
100-150 a month for those who earn less than
NIS 10,000. Giving money instead of taking it
away. Decreasing, not by much, but decreasing
social gaps. Giving only to the gainfully
employed. The cash will be financed by tax on
cigarettes and diesel fuel so the tax burden
will not rise.

Haaretz