Why wait? Treasury must provide guarantees that will calm nerves and restore confidence.
By JERUSALEM POST STAFFasia markets 224.88(photo credit: AP)
Finance Minister Ronni Bar-On is slated to unveil his emergency plan today to shield Israel from the impact of worldwide recession. It's about time. The admission that Israel is not an island impervious to the global economic tempest comes rather late.
Bar-On's complacency was encapsulated in the Knesset recently when he said: "Our policy of non-interference thus far has proved itself. When intervention is mandated, we will step in… A responsible leadership responds to crises with moderation."
Yet the measure of moderation must match the scale of the crisis.
The government's approach since mid-September has been lackadaisical. It's been hoping that the economy won't get any worse and loath to directly intervene even as governments in such bastions of capitalism as the US and Switzerland have done just that.
The situation is not helped by the fact that at so turbulent a juncture, Israel's economic leadership team is part of transitional government and unwilling to think out of the box. Yet we can hardly wait until after the February 2009 elections for a new government to be installed. Leadership must come now.
THE DETAILS of Bar-On's plan are known: investment in infrastructure, projects to encourage employment in the periphery, more money for the Galilee and Negev, vocational retraining and 60-day VAT payment extensions to temporarily increase liquidity.
Yet there is still no direct action to address the most pressing issue: protecting pension and provident funds as well as long-term non-speculative investments. It's not enough to promise possible future action during times of crises, when the psychological component is so crucial.
Ordinary citizens have already lost as much as a quarter of the value of their pensions though these investments were marketed as safe, conservative and minimally speculative. Knesset Finance Committee Chair Prof. Avishai Braverman (Labor) explained it best: "Savers, especially older ones who haven't got decades to wait for market corrections, are beside themselves with anxiety. They were forced, via their funds, into the market and now discover that they are victims of psychological forces beyond their control. They were warned off stocks and told that bonds are safe, but now, if one tycoon defaults, they could lose their life-savings. It's possible to restore peace of mind at negligible cost but every day's delay hikes that cost. Bar-On must speak in concrete terms and create real safety nets now."
WE AGREE. The crisis of confidence in average households is palpable and could trigger real decline, especially when combined with recent news of layoffs among both high-tech and low-paid workers. Calming panic is the government's most important task during financial and economic downturns. That essentially was what FDR did during America's 1930s depression. Similarly, Bar-On and his top staffers must become more of a presence in the media.
Chiding people for not complaining during economic upswings, yet for selfishly grumbling now, is wrongheaded. This is no time to rebuke small investors for modest past gains, especially investors of pension or near-pension age. Their losses, moreover, aren't a personal concern, but could drag the economy into a tailspin.
Investment in infrastructure - roads, railways and sewers - is always desirable, but the economic benefits will take a long time to be felt. Moreover, in Israel such construction projects are chronically late getting off the drawing boards, employ foreign personnel and are excruciatingly slow to bring to fruition. We don't have that kind of time.
There is nothing wrong with vocational retraining for those out of work, but it would be even better to prevent further joblessness. Postponing VAT payments and easing credit restrictions are closer to the mark, but the most urgent necessity is addressing the pernicious crisis of confidence.
Bar-On argues that the safety-net for pension, provident and mutual bond funds will be unveiled only in the event of an out and out crash, or "absolute chaos," as Treasury officials put it. If the current rash of redemptions from the funds becomes a deluge, then some guarantee of income will be contemplated or the government will begin buying corporate bonds to stabilize the market.
Why wait? Now is the time for the Treasury to intervene in the economy by providing the kind of guarantees that will calm nerves and restore confidence.
if(catID != 151){
var cont = `Take Israel home with the new Jerusalem Post Store
