Analysis: A game of psychology

Fear of public panic coerced the Finance Ministry and Bank of Israel to advance pension safety net.

bank of israel 248.88 (photo credit: Ariel Jerozolimski)
bank of israel 248.88
(photo credit: Ariel Jerozolimski)
It is the fear of public panic that coerced the heads of the Finance Ministry and the Bank of Israel to change direction and publicly advance plans to provide some form of a pension safety net. A large chunk in the crisis in confidence resulting from the global financial crisis is a game of psychology that creates reality, and it seems that the Treasury has been drawn into the game and is seeking the cheapest way to turn the wheel and regain the public's and investors' confidence. After weeks of opposition to getting its package of intervention measures for the capital market out of the closet, the Treasury on Sunday presented the measures to Attorney-General Menahem Mazuz for approval. The move came as the Histadrut Labor Federation declared a work dispute and political party leaders greatly intensified pressure on the Treasury to intervene in the market and protect the public's savings. Without a properly functioning government and a passed state budget for 2009, the Treasury and the Bank of Israel have been hesitant to commit to a costly financial package in a time of a severe economic slowdown. On the one hand, last week's big losses on the US and Israeli capital markets have put much pressure on the Treasury for a new emergency plan. On the other hand, there is much concern that the plan might not be able to pull Israel out of the crisis and that the decisions made today will be judged by a commission of inquiry in the future should the financial stimulus plan fail to do the work. Within the Finance Ministry there is also concern that the financial measures drawn up today could be very expensive and motivated by political pre-election interests rather than economic reason. So in the meantime, the Treasury has caved in to public pressure to go into action, and presented a plan in an effort to lower the panic level and boost investor confidence. At the same time, though, no decision has yet been made over the implementation of the plan, and there is doubt that Mazuz will approve it - maybe the best thing that could happen to Treasury officials. Although the financial measures promise the provision of some form of very limited pension safety net, it is clear that the Finance Ministry is still opposed to the idea and views it merely as a good election slogan rather than an economic plan that can be realized and that will do justice to the general public. Speaking at a conference on Sunday, Finance Ministry Supervisor of Capital Markets, Insurance and Savings Yadin Antebi said that the ministry did not have "magic answers" to all problems and that some of the solutions being demanded might turn out to benefit the wealthy and improve the situation of people with big savings at the expense of those who have not been able to put aside large sums in their pension plans.