Prerequisites for continued growth
Editorial
Haaretz, January 2, 2004
Contrary to the political-security arena, which yielded nothing but disappointment in 2003, the economic sphere did produce some encouraging developments. Following two years of economic backtracking, signs of growth began to emerge last year.
The 1.2-percent rise in gross domestic product is still a far cry from exhausting the economy's growth potential, estimated at 4-5 percent, and per capita growth remained negative (the population increased at a rate of 1.8 percent, hence per capita GDP - the accepted standard-of-living index - fell 0.6 percent).
While the figures are indeed a basis for hope that the recession is coming to an end, much still has to happen - and not only in the economic sphere, but in the political-security arena too - before the economy once again sets out on the high road to growth.
Last year's positive development was the result of both internal and external factors. The reforms implemented by the government after the elections generated a mood that encouraged faith in the future of the economy, and one of the most prominent indications of this was the awakening of the capital market. The easing - even if too slow - of monetary policy also added to the upswing.
But the principal positive push came from the outside - first and foremost, in the form of the loan guarantees afforded Israel by the U.S. administration (which was also impressed, presumably, by the government's willingness to implement reforms), and also the stirring of the world markets.
The economic reforms, as is the way with reforms in this sphere, involved belt-tightening too, and this disproportionately affected the low- and middle-income earners who were, naturally, the beneficiaries of the welfare and support payments that took a knock. Some of the damage was rectified during the course of the budget deliberations that ended this week, but substantial change in the situation of the weaker sectors and the unemployed can be expected when the rate of growth in the economy increases - already in 2004, as is hoped.
The chances of achieving this enhanced growth rate will improve as long as the government perseveres with a cautious economic policy - and, in particular, does not allow the budget framework to be breached, presses forward with its infrastructure investment plans and continues to privatize state-run companies. The fact that 2004 has started without an approved budget - together with the likelihood that even after its expected approval next week on second and third readings, it will be necessary to make substantial changes to its composition and risk breaching its framework - is cause for concern.
Another prerequisite for improving the state of the economy is putting an end to the labor disputes in the public sector that have been disrupting economic activity and making life difficult for all. Recognizing the link between the effect of the labor sanctions on the functioning of the economy and the good of the employees and unemployed should have also inspired the Histadrut labor federation to ease its positions in the talks that have been continuing for too long.
Notwithstanding all of the above, a big step toward rehabilitating the economy can only come when it is clear that a political settlement in the region has at least been initiated. Under conditions of political uncertainty and security concerns, Israel will not get all those foreign investors and entrepreneurs whose cooperation is imperative if a national economy wishes to prosper in the age of global economics.
