| Jerusalem
April 14, 1997 Let's look at the bad news first. Recent developments in the Israel economy point to a slowdown in activity. The trend can be discerned both in diminishing local demand and a decrease in the rate of export growth. Concomitantly, unemployment has slightly increased in the past few months, showing a rise from 6.4% to approximately 7%. We can also detect a certain gap in the State budget between the expected deficit and the planned deficit. This, despite the unprecedented budget cuts we implemented this year. Available data are insufficient to determine the scope of this gap on an annual basis. But we do know that the local deficit for the first quarter is half a billion shekel. The good news is that there has been a substantial decrease in inflation rates. Last year ended with a significant change in the pace of inflation. The rate for the first half of 1996 was approximately 15% per annum. It dropped to 7% in the second half of the year. After we achieved a more balanced fiscal policy, we fixed an inflation target of 7-10% for 1997, which I'm sure we can meet. At this point the rate is 9.5% on an annual basis. I believe our seriousness will be measured by the way we tackle inflation. These data make clear that the market needs a boost, and that there should be some flexibility, however small, in the monetary policy, along with a resolve to meet the fiscal deficit target determined by the government. The other significant bit of good news is that the trade deficit has diminished in comparison with the first half of 1996. I want to stress that despite the slowdown in the pace of economic activity, the economy's basic indicators continue to show that we can expect an annual growth of at least 5%. It is no secret that during the past two-three years, the market suffered a dangerous distortion: a combination of a fiscal expansion policy and a restraining monetary policy. There is also no doubt that only the wise policy of the Governor of the Bank of Israel during this period has prevented us from reaching a higher inflation level, with unpredictable consequences. Imposing this restraint was necessary to diminish excessive demand when the fiscal policy wasn't sufficiently tight. But now the fiscal policy is back on track and we constantly keep our finger on the budgetary pulse. Having examined the results of the first quarter of 1997, we are discussing the possible need for an additional cut to meet this year's deficit target. I wish to emphasize that the Israeli economy is very strong, as its basic indicators prove. Even during this period of a slight slowdown, for example, our hi-tech exports continue to grow at impressive rates. The market does not need an economic program or extreme measures, but at most - complementary measures which will result in a more balanced mix of fiscal and monetary policy. Against this background, I held discussions in the past few days with economic leaders as well as the Minister of Finance and the Governor of the Bank of Israel, to put together a series of steps which will provide the proper balance for the economy. This kind of balance will provide a solid infrastructure for the renewal of solid growth. Permit me to summarize: A budgetary cut will be made if the performance for January-March 1997 warrants it to meet this year's deficit target. I want to emphasize that if we find that there is a need for cuts, we will make efforts to confine it to areas whose effect on growth is marginal. We will not make cuts which may adversely affect growth. Our strategic goal is to turn the shekel into convertible currency in the world's markets. To achieve this, we must substantially accelerate the liberalization in the money markets and the removal of foreign currency controls. We shall do this gradually and prudently. This is the only way we can continue to be a magnet for foreign investors, who consider Israel a preferred country for investment. In the past few years, the Israeli economy has undergone a process of structural reform. In the framework of these reforms, industries of the future: electronics, hi-tech, information technology, computer software, advanced medical equipment and the like, are becoming increasingly significant, while the importance of the basic, classic industries is declining. The slice of advanced technological products has doubled, and they currently constitute approximately 80% of the industrial export. The number of start-ups per-capita in Israel is of the highest in the world, as is the number of scientists and academicians. These developments, as well as the processes of globalization and trade, demand exposure to world capital markets. No capital market is more suitable to the needs of Israel's economy than the NASDAQ stock-exchange. This capital market is the home of hundreds of advanced hi-tech companies operating under the auspices of efficient creators of outlets, in advanced trade systems, with low registration costs and many services. It is no wonder, then, that dozens of Israeli companies have made NASDAQ their home, thus contributing to the development of this stock exchange while NASDAQ has contributed enormously to the advance of Israel's economy. NASDAQ has opened many doors for Israel and thereby accelerated the process of globalizing the Israel economy. Moreover, the international exposure Israel's economy has enjoyed through NASDAQ has embraced Israel's world standing and has conduced to impressive growth of foreign investments in Israeli companies. Our knowledge industry has become a house-hold name internationally. It is the flagship of the Israeli market, and a sure leader in the progress to the 21st century. I am certain that in the coming years, too, the Israeli market will continue to benefit from the good offices of NASDAQ, and that NASDAQ will continue to accompany us in our march to the future. |
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