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The Media Line: Elections Are Bad for Business, Israeli Economic Leaders Say

Elections Are Bad for Business, Israeli Economic Leaders Say

Political instability makes long-term planning difficult, but wecan cope, they add

By Debbie Mohnblatt / The Media Line

Political uncertainty will damage the economy, YohananPlesner, president of the Israel Democracy Institute (IDI), saidon Tuesday, a day after Prime Minister Naftali Bennett decidedto dissolve the Knesset and schedule the fifth national election inthree and a half years.

When ministers are replaced and governments fall, Plesner said,“it’s almost impossible to make [business] decisions, especiallynot decisions that take long-term planning into account anddemand persistence in their implementation. This is true of mostof the foundational challenges facing the economy.”

At best, he continued, “Israel will need to wait at least anothersix months until a stable government is formed. A less positiveoutcome would be that we find ourselves sliding into a sixth, oreven a seventh, election.”

Plesner spoke at the IDI’s Eli Hurvitz Conference on Economicsand Society being held this week in Jerusalem.

Ram Blinkov, director-general of the Finance Ministry, told TheMedia Line that even if another round of elections isinconvenient for the economy, it is a price of democracy.

“Elections mean uncertainty, which is very bad for the economy,and we don’t like it. But this is a democracy, and we need todeal with it,” he said.

Dr. Ron Tomer, president of the Manufacturers Association ofIsrael, told The Media Line that for the businessmen and themanufacturers in the country, this political instability makes itimpossible to predict the future.

The Bennett government made an important change; it actuallypassed a state budget after two and a half years without one, saidTomer. “But we need continuity, without continuity we cannotdo long-term planning,” he added.

In addition, every round of elections represents a big risk forindustry, he explained.

For us, he continued, “running now to elections is a big problemand we’re very afraid that with every election there could besome kind of populist decisions.”

“We are really frustrated by this. I’ve been in my role for twoand a half years. Finishing my third year by the end of this year,I’m going to serve under four different governments; it’simpossible,” Tomer said.

Finance Minister Avigdor Liberman, addressing the conference,said Israel is making progress in countering the soaring cost ofliving. He added, however, that the government needed moretime to complete the job.

“We are heading in the right direction in terms of contendingwith the rising prices. But to implement plans you must have atleast two years of stability. The housing market doesn’t changein a month or two,” he said.

“Within a year we were able to halt the rising cost of housingand stabilize prices, and if we would have continued for anotheryear we would have succeeded in lowering costs,” Libermansaid.

Prof. Michel Strawczynski, director of research at the Bank ofIsrael, told The Media Line the economy could function duringsuch times of political instability.

“Israel knows how to work when we don’t have a government.We already had four elections, and this will be the fifth, and infact, we have very clear rules in the budget,” he said.

The current state budget will continue in force until the end of2022, the election will probably be held at the end of October,and this means we will start 2023 without a budget, explainedStrawczynski.

“There is an automatic rule that helps the government to work[in such a situation], and we have already shown in the past thatit’s not a major problem,” he said, adding that it is still importantto approve a 2023 budget as soon as possible.

When no state budget is in place, the law authorizes thegovernment to expend a sum equivalent to 1/12th of theprevious year’s budget each month, adjusted for inflation.However, changing priorities and signing new contracts isdifficult.

Strawczynski added that the fact we didn’t have a budget for solong was problematic in many senses. “For example, there wereno priorities. The new government started to make somechanges, but I think that the main problem is that it didn’t haveenough time to start reforms,” he said.

Blinkov said that despite the political instability, the FinanceMinistry has “been able to support our industries throughbudgets from the government and by pushing for an incentivefor investment.

“You have to remember that we just passed through two years ofCOVID, we have the big world economic crisis, we have thisterrible war in Ukraine, we have the shipping and the energycrises. There are so many threats; we need to make all possibleefforts to be strong and to pass through this era,” Blinkov said.

“I’m not sure that political instability is a great help,” hecontinued.

Blinkov described rising prices as the most significant challengefor the economy. “We are facing significant inflation after manyyears of non-inflation, even though in comparison to Americaand other places it’s lower here. But we are concerned about it,”he said.

Strawczynski added, “We were experiencing relatively rapidgrowth and all of a sudden, the challenge of inflation became themost important one. We started to raise the [Bank of Israel’skey] interest rate and are now at a level of 0.75%.”

Blinkov said the rising production from Israel’s offshore naturalgas reservoirs helps to counter the rising prices. It also makesIsrael almost independent in the energy sphere, he added.

“This is one of the reasons that inflation is much lower here.We’re not affected by the price increases for energy in Europeand America,” he noted.

Strawczynski said Israeli authorities are taking measures to dealwith the effects of the increasing gas production, which is apositive phenomenon but also creates issues that need to beaddressed.

We have raised a lot of revenue from taxing the gas anddealtwith that by forming a sovereign wealth fund,” he said.

That will help to counteract the possible bad effects, such asaccumulating a great deal of foreign currency that leads to anexcessive rise in the value of the shekel, making Israeli exportsexpensive and uncompetitive, Strawczynski said, reiterating,however, that the gas revenue is nevertheless “a very positivephenomenon.”

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