Finance Minister Steinitz: Economy in ’emergency situation’

The economy faces an “emergency situation,” Finance Minister Yuval Steinitz warned on Monday, while urging lawmakers to support the government’s draft budget, as Israeli exports plunged 32 percent in the first four months of this year

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FINANCE MINISTER Yuval Steinitz (left) said at a meeting of the Knesset Finance Committee that the sharp decline in exports was ‘especially worrying.’ Photo: Ariel Jerozolimski

Gross domestic product shrank an annualized 3.6% in the first quarter, the Central Bureau of Statistics said on Sunday, demonstrating the “depth” of the crisis, Steinitz told the Knesset Finance Committee in Jerusalem. Export figures, which showed a 46% annualized decline, are “especially worrying,” he said.

“Whoever hasn’t understood until now how bad the crisis is, ought to understand now,” he said. “We are truly in an emergency situation.”

Prime Minister Benjamin Netanyahu’s government, which pushed the
draft 2009=2010 state budget through the cabinet last week, must now overcome objections in the Knesset to the plan to raise value added tax to 16.5% from 15.5% and to impose VAT on fruit and vegetables. Steinitz said the budget plan, which includes additional spending, will mitigate the crisis and put the economy back on track.

The government must gain parliamentary approval for the budget by mid-July, according to law, or else an early will be scheduled.

The economy is expected to contract by 1.5% this year, the biggest recession in the state’s 61-year history, according to a Bank of Israel forecast. Unemployment will rise to 7.7%, from 6.1% last year, according to the forecast.

The Finance Ministry currently sees the shortfall in tax revenue for the next two years at NIS 70 billion, less than the NIS 80b. originally expected, Steinitz told the committee on Monday. He added that an income tax cut scheduled for 2010 will probably be more “moderate” than planned.

While the government will help guarantee investments by companies in Israel, it won’t help companies fund investments abroad, he said. The Finance Ministry also plans to impose “heavy fines” on employers of illegal foreign workers to open up more jobs for Israelis, he said.

Knesset Finance Committee chairman Moshe Gafni urged Steinitz to rethink his plan to raise VAT and tax fruit and vegetables, which he said will hurt people on lower incomes. Committee members from both the coalition and opposition told Steinitz they wouldn’t support the plan to impose value added tax on produce.

In another sign of a deepening recession, the Israel Export Institute reported on Monday that in the first four months of the year exports of goods, including diamonds, dropped 32% in dollar terms compared with the same period last year and amounted to $12b.

“The latest data published by the Central Bureau of Statistics for the first quarter of 2009 point to a direct link between exports and growth figures for the economy,” said David Artzi, chairman of the institute. “If the plunge in exports continues over the coming three months we will more aggressively act to advance the implementation of additional measures for the support of exporters.”

Artzi added, though, that he hoped the continued depreciation of the shekel against the dollar and other planned measures to assist
exporters, as well as, first signs of a recovery in the US economy would halt the sharp decline in the coming months.

The plunge in exports in the January-to-April period was led by a decline of 58% in exports of diamonds, which totaled $1.6b. compared with $4b. last year. Exports of goods, not including diamonds, dropped 24% during the first four months of the year, while agriculture exports fell 2%.

The decline in exports for the January-to-April period stems from the sharp decline of imports in all of Israel’s 10 leading export countries, the Israel Export Institute added.

Looking ahead to the rest of 2009, estimates are that the volume of imports of goods in the top 10 Israeli export countries will drop by 40% in dollar terms.

Among Israel’s 10 leading export countries are the US, Belgium, Hong Kong, the Netherlands, Germany, the UK, Italy and France. Global trade is expected to decline by 9.7% in 2009 after growing by 3.3% in the previous year, as the world economy is expected to contract by 3% this year.

May 19, 2009 10:24 | Updated May 19, 2009 10:25

Source: Jerusalem Post

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