Bar On cab meetg.
(photo credit: Pool photo)
Finance Minister Ronnie Bar-On on Sunday vehemently rebuffed the Labor Party's demand to expand spending in the 2009 state budget by 2.5 percent of the gross domestic product.
"At this moment we don't see signs of serious concern regarding the repercussions of the US financial crisis on the local economy," he said at the cabinet meeting on Sunday.
It was particularly important not to let politics set economic policy given the current situation, Bar-On said. "It would be wrong to deviate from budget targets we have set," he said. "We should not open the budget because of the global financial crisis."
Bar-On warned the ministers against increasing spending ahead of coalition talks on the state budget later Sunday between new Kadima leader Tzipi Livni, Labor chairman Ehud Barak and senior economists. Barak has reportedly set a number of conditions for joining a Livni-led government, including increasing state spending by 2.5% of GDP instead of by 1.7% as set by the draft state budget for 2009.
In response, Barak called for intervention to ameliorate the effects of the financial crisis.
"Indeed, the world economic crisis is a threat, but hidden within it are also opportunities for improvement," he said. "What is needed is an intervention to take care of this crisis, which would be initiated by the Finance Ministry, the Bank of Israel governor, the Histadrut [Labor Federation] and employers."
Welfare and Social Services Minister Isaac Herzog expressed concern regarding the public's savings, saying that the reforms previously implemented by then-finance minister Binyamin Netanyahu, which allowed pension funds to invest in the US stock market, were the reason that our pensions were now at risk.
The general mutual funds index dropped 3.2% in September and 5.4% since the beginning of the year, according to Meitav Investment House Ltd. report published on Sunday. In September, funds invested in general bonds saw a decline of 5.7% and funds focusing on government bonds fell 1.3%, while those centered on foreign bonds plunged 7.1%.
Funds invested in foreign stock markets took the biggest hit in September, dropping 14.8%, while those invested in the local stock market fell 12.3%. From the beginning of the year, funds invested in foreign shares plunged 33.9% and funds invested in local shares saw a decline of 34%.
Prime Minister Ehud Olmert told the cabinet that attention last week was focused on the global markets, especially on events in the US.
"During the week, Bar-On, Bank of Israel Governor Prof. Stanley Fischer and I held regular consultations in various forms," he said. "We spoke daily and will continue to do so to monitor the situation."
In another attempt to shore up confidence in the local banking system and dampen panic in the local market created by the deep financial turmoil in the US, the Bank of Israel last week reported that Israeli banks have good and stable levels of liquidity even after the global credit crunch worsened. The central bank added that local banks were financially strong and can cope with the impact of the global financial crisis and slower global economic growth.