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In the face of praise for Israel's strong economic performance through a politically turbulent year, a leading economist maintains that political advancements are still key for the country to achieve higher sustainable growth, which could put it among the most prosperous in the world.
"Given the country's strengths, with its extremely well-developed labor force, level of education and human capital, and given what it has been able to achieve in the last 15 years in information and communications technology etc, there is no reason that Israel could not grow much faster and become one of the most prosperous countries in the world, but the security issues will have to be addressed," Augusto Lopez-Claros, chief economist and head of the Global Competitiveness Network at the World Economic Forum, told The Jerusalem Post ahead of his visit to Israel for next week's Globes Israel Business Conference
Israel's economy grew 5.8% in the first half of the year but that momentum was slowed by the war in Lebanon. Nevertheless, late last month, Bank of Israel Governor Stanley Fischer boosted his tempered outlook for growth, raising his expectations for 2006 to 4.8% from 4.6%. At the same time, the level of foreign investment picked up pace this year as a number of major acquisitions took shape, even during the war, and the Tel Aviv Stock Exchange continued to grow to record levels.
"The performance of the markets through the war speaks to the strength of the Israeli economy that there has been some degree of delinkage between the performance of the economy and the security situation," Lopez-Claros said. "But if you really think of the long-term future of Israel, then you need to think about securing a more lasting basis for peace in the region and a sort of long-term security arrangement which is not what we have."
In such a scenario, he said, it would be entirely feasible for Israel to move to a higher growth platform of 7-8 percent.
At the conference, Lopez-Claros said he would outline the factors that, in the experience of the agency's Global Competitiveness Report, best contribute to countries' successes in achieving long- term growth in per capita income.
These include the responsible management of public funds, the efficient use of tax revenues, transparency of government institutions, judicial independence, minimizing bureaucracy, investing in education, the use of technology as engines for growth and and the empowerment of women.
Earlier this year, Lopez-Claros's annual Global Competitiveness Report ranked Israel as the world's 15th most competitive economy with its most significant achievements coming from technological readiness, macroeconomic management, market efficiency and various areas of infrastructure.
In speaking to the Post, Lopez-Claros said that while Israel has done well in many of these areas, especially its investments in education and training, there are still areas that Israel can do more to stimulate prospects for future growth.
Two such areas, he said, were the need to develop a more flexible labor market and further improvements to general infrastructure.
Still, however, Lopez-Claros stressed that Israel's long-term growth prospects were dependant on political developments.
"The underlying security situation doesn't only affect Israel but it does have an impact on the investment climate here and reduces the potential role that Israel could play in terms of trade and investments in the region," he said. "So when you think of Israel's long-term economic future it is imperative that ways are found to secure a more stable environment to make it possible for people to invest long-term in Israel and not have excessive concerns about the next Intifada or next unraveling of relationships with some of the unfriendly neighbors that Israel has."
The Israel Business Conference is scheduled to open on Saturday night with an address via video conference by US businessman Donald Trump. Over the following two days, leading businessmen and politicians will make presentations including Prime Minister Ehud Olmert and Finance Minister Avraham Hirchson.