Distinguished Audience,
The events of the past few weeks shed a new light on this Caesarea Forum, and it seems that it would be appropriate to focus our discussion on the issue of "Economy and Governance", or to be more precise: "Economy despite the Problem of Governance."
From the side of the governance, ongoing political turmoil – just as we are experiencing at this time – is especially intricate and complex. As opposed to election periods in which the rules of the game are known, the horizon is clear, and the behavior of the political players is interpreted – openly and legitimately – as a petition to potential voters, the current period is characterized first and foremost by uncertainty. The different players in the political field are calculating their steps and considering the many possible scenarios for the future; the media is meticulously investigating – and rightfully so – every governmental decision, and pondering whether it was brought about by true commitment to a national mission or by personal election-year considerations. The general political weakness is like an invitation to different interest groups, calling on them to take advantage of what may be the final "window of opportunity", in order to apply pressure, to protest, to create a chaotic atmosphere, thus achieving any possible goals before the governmental system enters another election period.
The most obvious example is the behavior of the Knesset recently, and the intensifying stream of private bills that have financial or budgetary implications – bills that are promoted against the will of the government and the coalition.
When the average Knesset's lifespan is cut in half, leading long-term policies and making significant reforms become an almost impossible challenge. In light of the current instability – which has characterized many previous periods of political turmoil – unavoidable questions of governance, legitimacy, and other fundamental issues in any democratic regime have become the center of attention yet again.
In the following address I will attempt to analyze the ramifications of this period of uncertainty regarding the activity of the executive and legislative branches in the realms of politics, society, and economy, taking into account the complex challenges the State of Israel faces.
In the political realm –
Israel has been directing several crucial diplomatic and political processes, the success or failure of which could have consequences of vast importance in the areas of regional stability and the strategic balance of power between Israel and her neighbors.
My opinion on this matter is that we, the government and the individuals that comprise it, must adopt two fundamental rules in our political actions:
First, we must recognize that sometimes haste can lead to disaster. In the matters of war and peace, and in negotiation processes, that is a basic assumption. The challenge we face, in this time of uncertainty, is to find the delicate balance between our duties as a government – leading the country in light of the many complicated challenges it faces, and not allowing it to stagnate and freeze-up; to identify the cases in which waiting and stalling is irresponsible and can lead to missed opportunities; and at the same time we must recognize the cases and decisions that are not yet ripe, which demand high levels of political stability and major support on the part of the Israeli public.
Second, there are certain aspects of the ongoing diplomatic processes – with the Syrians, the Palestinians, the Iranians, and regarding the POWs and MIAs – that it is better not speak of, whereas discussing the matter is not only unhelpful, but may even be harmful and could uncontrollably affect the regional state of affairs in the coming years.
As a rule, we, Israelis, have a tendency to analyze the intentions of our adversaries too naively; to assume that if we only extend a hand of peace – thinking this is an expression of remarkable strength – our enemies will immediately follow our lead. We are quick to make declarations, speak much of our willingness to make painful sacrifices, and go on and on with our obsessive self-persuasion that the price of peace is paid in pain. The reality of the Middle East is abounding with conflicts and an intricate weave of interests. There is always the chance the other side is interested only in the process itself – not necessarily in completing it. We must at least consider these possibilities.
We have in us a type of basic urge to make frequent declarations – militaristic and appeasing – even on the most sensitive issues, instead of adhering to the ancient rule "say little and do much". This situation, in retrospect, regarding the issue of the POWs and MIAs; this is the situation regarding of the Iranian issue and the many references and allusions to that matter; this is the situation regarding the agreement with Hamas, and the diplomatic processes with the Syrians and Palestinians. My opinion, as stated, is that there are times and situations where silence, patience, and endurance are called for.
At this point, with your permission, I will address the socioeconomic realm.
Distinguished audience,
The Israeli economy faces many complex challenges – rates of inflation and fluctuation in the prices of oil and commodities; the strengthening of the Shekel versus foreign currencies, and the alarming depreciation of the dollar; the blows to the stock markets, the real-estate markets, the agricultural market, as well as other export areas; the slowdown in some of the Western economies; the dual structure of the Israeli economy; the rise of new-old economic powers in the East; and above all – the fear of political and geopolitical blows affecting the economic realm – all these issues build up concern over possible negative effects on the Israeli market and increase the possibility of a slowdown in the rate of growth we have become accustomed to over the past few years.
Despite the encouraging achievements of the market in the first quarter of 2008, our working assumption in the treasury is that a slowdown in Israeli economy is imminent; and that the global economic crisis will affect Israeli economy, even if only to a small degree, as a result of the market’s relative advantages – its stability, its strength, and the difference between it and other Western economies.
This is the mindset that has guided us in the steps we have taken for the Israeli market in 2008 and in formulating our plans for 2009. The combination of political uncertainty, geopolitical processes, and financial challenges ahead form a more complicated reality in relation to the budgeting process, the make-up of the budget, and the goals of the financial policy for 2009, which we are in the process of identifying at this time. It takes a gentle combination of economic and national responsibility and political realism – prioritizing goals and fronts and focusing on the most urgent and applicable processes. The economic stability of the past years, despite geopolitical and political turmoil, teaches us that it is possible to overcome this challenge and that the economy can be separated from politics. By the way, those were my considerations when I decided to recall the tax plan as it was submitted, despite my belief that it is imperative for the market, considering the challenges ahead. That is also why I've instructed my office to continue in their efforts to formulate an alternative plan, maybe a minimal one, which will be applicable even in a problematic political setting.
In the background of the financial plan for 2009 is a reality that demands bridging a large build-up of commitments, at a level of 8.8NIS billion – a level that was achieved only after a great effort at minimizing the problem. We are in fact dealing with the accumulated failures of the last Israeli governments in defining responsible and transparent budgetary rules that don't mortgage future budgets completely and irresponsibl