The second front

 



  When the local currency rapidly decreases in value, it is a sign 
of serious economic trouble. In the past four months, the shekel 
has lost 20 percent of its value against the dollar. The 
Argentine peso lost 47 percent when it was cut loose from its 
dollar peg in February. So we still have a way to go before our 
economic crisis reaches Argentine proportions, but there is 
little doubt that unless drastic measures are taken, we are on 
the way. Warning lights are flashing.

  Confidence in the local currency is an essential element of a 
sound economy. Argentine President Eduardo Duhalde tried to 
instill such confidence among Argentina's citizens after the 
devaluation of the peso when he said, "Those who bet on the 
dollar will lose." Unlike him, MK Joseph Paritzky did his best 
to undermine confidence in the Israeli shekel when he told 
Israelis to consider transferring their wealth abroad. The rapid 
drop in the value of the shekel is a sign that confidence in it 
is waning. Had Paritzky's misguided advice been taken by most of 
Israel's citizens, we would be digging ourselves out of the 
ruins at this time.

  There are many differences between the Israeli and Argentine 
economies. Most of the Argentine government's debt is in 
dollars, while most of the Israeli government's debt is, 
fortunately, in shekels. The structure of the Israeli economy is 
basically sound, but on the other hand, Israel is at war, with a 
significant proportion of its resources devoted to defense. 
Sound management of the economy is an essential element in the 
conduct of the war against Palestinian violence and terrorism. 
With good economic management, Israel should have little trouble 
overcoming the present crisis. But where is that management?

  Judging by the steps taken by the Finance Ministry, one can only 
speak of mismanagement. It started with the economic forecasts 
published by the ministry last year. While it was already clear 
that the economy was well on its way to a recession, the 
ministry's bureaucrats forecast continued growth for the 
economy. Based on false premises regarding anticipated 
government revenues and underestimates of the need for defense 
expenditures, a totally unrealistic budget was prepared. It was 
only when the government's income from taxes started to fall far 
short of the forecast that the bureaucrats woke up. Finally, the 
ministry realized the budget it had prepared would have to be 
drastically revised and curtailed. But all the talk of big cuts 
in the budgets of most of the ministries came to naught. In an 
attempt to keep the coalition afloat, money was again parceled 
out right and left, and the government's budget deficit 
increased beyond reasonable bounds. The bloated budget was 
passed through the Knesset to the sounds of ministerial 
congratulations advertising "a great political triumph."

  But the budget was a disaster. No sooner had it been approved by 
the Knesset, than talk began of the need for a major revision. 
Then the finance minister dramatically announced an emergency 
economic plan based on large-scale tax increases in an already 
over-taxed economy. At the same time, there was no let-up in his 
continuing battle with the governor of the Bank of Israel, who 
is supposed to be his partner in managing Israel's economy. 
Plans for a law that would restrict the authority of the 
governor were ill-received in the international financial 
community and seem to have been dropped for the time being. The 
emergency economic plan is in the process of being torn to bits 
by the many political interest groups whose constituencies will 
be affected by the plan. Is it any wonder that the shekel's 
value is decreasing daily?

  It should be clear that the problem Israel is facing at this 
time has much more than just an economic dimension. Israel is at 
war. All eyes are directed at Palestinian acts of terror and the 
IDF's moves to destroy the network of terror in Judea and 
Samaria. But successful management of the economy - the second 
front - is essential so that the resources needed for defense 
needs can be made available without causing serious damage to 
the economy.



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