The government steps up – but will it be enough?

The government, under great pressure to "do something" about the burgeoning economic crisis, announced its emergency program on 19 November to revitalize the economy, currently characterized by clear signs of slowdown. The program has 4 main parts:
Increased investment in infrastructure
Special help to the hi-tech sector
Financial assistance to small businesses
Increased vocational training

All of these are classic measures: infrastructure investment is a textbook solution for enhancing economic growth, the hi-tech sector – extremely important in the Israeli economy – is already suffering significantly from the slowdown, small businesses in general tend to be the early victims when growth slows, and increased vocational training may well be called for when unemployment is growing.

But will all this be enough and will it have the desired results? The Minister of Finance announced that the program will involve expenditure of some 22 billion shekels in 2009, a very impressive sum. But this is far from the complete truth: part of the program is already built into the 2009 State Budget (which has still not been approved), so the actual increase in expenditure that the program calls for in 2009 is only 4-5 billion shekels. Secondly, part of the designated expenditure – in the area of infrastructure investment, for example – will only be forthcoming after 2009.

Another question regarding the program is how soon its implementation will begin. A general election has been called for February 10, 2009 and based on experience, little policy making takes place in the run-up to an election, and then after the election, forming a coalition is usually a very lengthy process. So it may be 5-6 months before anything concrete can be done with the program. In an election spirit, some critics of the program are already arguing that the program is no more than pre-election "spin", designed to help the ruling Kadimah party improve its election chances. In any event, the program still has to be approved by the Knesset, and some political parties may take advantage of this as the elections approach and make demands on the budget in return for voting in favor of the program.

But the biggest question of all concerns the fact that the program includes no measures to deal with the problem of long-term savings, whose value has dropped steeply as a result of the crisis in the financial and capital markets in 2008 as a whole but particularly from September. The Histadrut – Israel's nation-wide trade union – has demanded a "security net" whose function would be to protect long-term savings. Now that the emergency program has been announced without the security net, the Histadrut is threatening to call a national strike. This may seem a strange thing to do when unemployment is increasing, but in the past, it is proved the most effective way to achieve the Histadrut's aims.

It is still early days for the new emergency program, and its being an emergency program may increase the chances of its implementation. But in the meantime, the negative indicators keep rolling in.