Treasury's economic stimulus package poised to be delayed

Olmert's approval of stimulus measures to cope with crisis not enough.

Ronnie Bar On 88 248 (photo credit: Ariel Jerozolimski)
Ronnie Bar On 88 248
(photo credit: Ariel Jerozolimski)
The Finance Ministry's multibillion-shekel economic stimulus package, which was expected to be unveiled this week, could now be delayed pending the approval of the Knesset Finance Committee. "We are going to announce an economic package of measures as early as this week," a Treasury official told The Jerusalem Post on Sunday. On Sunday evening, though, after the package was presented and okayed by Prime Minister Ehud Olmert, it was ordered that the economic recovery plan would have to be first presented to the socio-economic cabinet and then passed by the Knesset Finance Committee before it is presented to the public by Finance Minister Ronnie Bar-On and the ministry's director-general Yarom Ariav. Speaking at the Knesset Finance Committee last week Bar-On said the government was preparing a package of measures to weather the effects of a looming global economic recession but that it did not intend to intervene directly in the financial market. Pressure has been mounting on Bar-On in recent weeks to act following signs of a slowdown in the growth rate of the local economy as the repercussions of the global financial crisis are starting to weigh on business activity and credit availability. At the heart of the package are billions of shekels to bring forward investment into national infrastructure projects - including roads, railways, electricity and sewerage. Increased investment in infrastructure is intended to encourage economic activity and employment offsetting a wave in layoffs. In an effort to maintain research and development activity of start-ups, the Treasury is expected to double the budget of the Chief Scientist's Office from NIS 1.3 billion in 2009 to about NIS 3b. Small and medium-sized businesses could find it more difficult to continue operations amid the global economic crisis without substantial credit lines as banks are tightening conditions. In a move to secure the availability of credit lines, the Finance Ministry is expected to present measures to extend large amounts of credit at good terms to small and medium-sized businesses by providing state backing for part of the funds. As part of the package the ministry is also expected to transfer budgets to the periphery in the north and the Negev, particularly in infrastructure and education, to boost employment and economic activity. Moreover the Treasury is poised to speed up various regulatory changes, by the Israel Securities Authority and Bank of Israel, in order to improve the supervision of the financial sector and correct imperfections revealed over the past few months. The implementation of the economic stimulus package is expected to be financed by an increase in the 2009 budget deficit beyond what the cabinet approved in August rather than by increasing the government spending ceiling. The planned budget deficit for 2009 was 1% of GDP. Following the stimulus package, the Treasury is preparing for a scenario in which the deficit could rise to 3% to 4% of GDP. In the Bank of Israel's Inflation Report for the third quarter of 2008 published last week, Bank of Israel Governor Stanley Fischer indicated that a moderate rise in the deficit was acceptable if the government's budget spending ceiling was not adjusted upwards. "It is of special importance that such steps should not result in an excessive increase of the government deficit or government debt," stated the Bank of Israel in the report. "The credibility accrued by fiscal policy, however, means that a short-term moderate increase in the deficit is not likely to undermine economic stability or the confidence of the public, domestic and foreign investors in Israel's economic policy."