When Barak announced the appointment of Avraham Shohat to his old position as Finance Minister, the Israeli market reacted instantly. What had been a day of gains on the stock market was wiped out inside of a half-hour, and the market ended with a loss. In the three weeks since then, the market has rarely gained value in any given day, and has lost close to 20% of its value. Shohat hasn't really needed to say anything, yet all the hard work done by Bank of Israel Governor Yaakov Frenkel and the previous two finance ministers in order to gain control of the economy and bring Israel out of its recession has been wiped out.
Shohat is bad news for a struggling economy. When he left the finance ministry four years ago, the economy was entering a period of harsh recession due to his tax-and-spend policies. The accumulated deficit was beginning to climb out of control, inflation was still too high, and the combination of these two factors was leading to extremely high unemployment figures as the economy shrank. In addition, Israel's import-based economy was suffering from high fluctuations in the exchange rate due to the instability caused by Shohat's policies.
Yaakov Ne'eman and Meir Sheetrit brought a large measure of stability to the economy by curtailing spending across the board. Inflation was brought under control and the ground was prepared for intelligent spending on social programs and employment. A re-organization of government spending priorities was being done, and the economic picture for Israel looked to be improving.
Ehud Barak ran his campaign in part on economic issues. He complained loudly about the high unemployment rate, wrongly blaming Netanyahu for it. He complained about all the money being spent on "settlements" and on religious education, and not on social programs. Israelis flocked to support him on this issue, and he successfully parlayed the voters' discontent with the current economic situation into a landslide victory at the polls.
But in one move, Barak destroyed all the moves made by the previous government toward improving the economic situation in Israel. He appointed Shohat as Finance Minister.
Due to the appointment, and to irresponsible statements made by Shohat since then, the shekel has lost a considerable amount of its value. Shohat has made it very plain that he hates Frenkel and cannot stand Frenkel's monetary policy. Frenkel is one of the most respected economists in the world, having served for a not inconsiderable time on the executive of the World Bank. Frenkel knows exactly what it will take to get Israel's economy back on its feet, and that such measures will take more than three or four years to play out.
But a few statements by Shohat against Frenkel and his responsible monetary policies, and many foreign investors have begun taking their money out of Israel, thus devaluing the shekel. Yesterday, Shohat stated that he would not be surprised if the shekel settled around 4.35 or 4.40 to the dollar - a further five percent devaluation. Like most other things in Israel, that could very well become a self-fulfilling prophecy.
Shohat's appointment, though, is perhaps not surprising. After all, Barak, having campaigned against what he saw as irresponsible spending, has now pushed through a constitutional amendment allowing him to spend close to a hundred million shekels a year on six new ministers. This, supposedly in order to bolster his coalition. But I, for one, have a hard time believing that Amnon Shahak of the Center Party - a former Chief of Staff in the IDF - will vote any differently whether he is Tourism Minister or Deputy Tourism Minister.
There is no reason at all to increase the number of members in the cabinet. In fact, it is the height of folly to have one of every five members of Knesset serving in the cabinet. Why not turn the entire Knesset into the cabinet and do away with the extra expense of one of these bodies? The damage done by expanding the cabinet thus has two parts. The first is economic. From where does Barak expect to get the extra money to pay for these extra appointments. If there is not enough money being spent on education, social programs, job retraining and health, then whatever extra money Barak has found should be spent in these areas, and not for increased perks for a few politicians.
Second, there is tremendous damage done to the democracy of Israel. Whatever minimal checks and balances exist in Israel are further weakened by the increase in the size of the cabinet.
Perhaps none of this should come as any surprise. Israeli governments have historically been tremendously inefficient. Among them, Labor governments have been the worst. By making the cabinet more unwieldy, this trend only continues. By disregarding Israel's real economic well-being for some momentary respite, the trend further continues. Both moves will do long-lasting damage to Israel and will take years to rectify once this government is out of power. One can only guess at the real purpose behind these moves, and hope that it is not just the blind flailing of "leaders" who have no clue what they are doing.
Copyright 1999. Reproduction in print or electronic format by permission only.
