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Identifier
Created
Classification
Origin
04TELAVIV6632
2004-12-29 12:09:00
CONFIDENTIAL
Embassy Tel Aviv
Cable title:  

NETANYAHU AND CODEL LIEBERMAN DISCUSS ECONOMIC

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						C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 006632 

SIPDIS

E.O. 12958: DECL: 12/28/2014
TAGS: ECON PREL EFIN KWBG IS ECONOMY AND FINANCE PEACE PROCESS ISRAELI PALESTINIAN AFFAIRS GAZA DISENGAGEMENT
SUBJECT: NETANYAHU AND CODEL LIEBERMAN DISCUSS ECONOMIC
REFORM, PROSPECTS FOR PEACE

Classified By: Ambassador Daniel C. Kurtzer for reasons 1.4 (b) and (d)

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 006632

SIPDIS

E.O. 12958: DECL: 12/28/2014
TAGS: ECON PREL EFIN KWBG IS ECONOMY AND FINANCE PEACE PROCESS ISRAELI PALESTINIAN AFFAIRS GAZA DISENGAGEMENT
SUBJECT: NETANYAHU AND CODEL LIEBERMAN DISCUSS ECONOMIC
REFORM, PROSPECTS FOR PEACE

Classified By: Ambassador Daniel C. Kurtzer for reasons 1.4 (b) and (d)


1. (C) Summary: CoDel Lieberman met with Minister of
Finance Binyamin Netanyahu on Tuesday, December 28 to discuss
elements of the Ministry's economic reform package, as well
as prospects for advancing the peace process in the wake of
Arafat's death and the rise of a new PA leadership. On the
economy, Netanyahu said that Israel has achieved the
equivalent of "ten years of growth" via privatizations,
pension reform, reducing taxes, cutting government spending,
and a welfare-to-work agenda that will bring 80 percent of
poor families above the poverty line within one year. He
noted that while he does not like the way some 150,000
illegal foreign workers have been "rounded up" and deported,
their departure is crucial to lowering unemployment. On the
peace process, Netanyahu said Israel is in a "moment of
opportunity" for re-engaging with the Palestinians, but that
what he termed U.S. hopes for teaming up with Europe to apply
pressure on the PA to reform are misplaced since "Europe
consistently fails to see Palestinian shortcomings." The
change in PA leadership will be meaningless without societal
change and Fayyad-like reforms across the board, he said, but
with a real partner for peace Israel will spare no effort to
reach a final settlement. Netanyahu expressed his concern
over threats of violent resistance to disengagement from
"tens of thousands" of settlers, saying only a national
referendum could calm the waters. End summary.

--------------
Encouraging Growth by Trimming Government Fat
--------------


2. (C) CoDel Lieberman met with Minister of Finance Binyamin
Netanyahu December 28 to discuss a range of economic and
political issues. Netanyahu began the meeting with a
discussion of the effects of his broad economic reform
agenda, noting that simply by "opening up the economy" Israel
has achieved the equivalent of "ten years of growth" during

his tenure. "Israel has made the fastest transfer to a
complete market economy the world has seen." Noting that per
capita income is up and the deficit is down, Netanyahu said
he expects over four percent annual economic growth within
the next two to three years. A key feature of his agenda has
been "slimming down" the public sector, historically 60
percent of GDP, via aggressive privatizations including El Al
airlines and the banking and telecom sectors. He noted that
significant corporate and VAT tax breaks as well as
government payroll cuts are additional elements of MinFin's
program of economic reform.


3. (C) Netanyahu said that while most countries have avoided
tackling pension reform, he did so by nationalizing union
pensions, raising the age of retirement across the board, and
modestly cutting benefits while increasing contributions.
Similarly, his welfare reform program has reduced the "fat
man of welfare" from 56 percent of GDP to 51 percent. When
opponents of welfare reform cite poverty statistics, he
explained, they ignore the fact that within one year,
MinFin's welfare-to-work program will raise approximately 80%
of working poor families well above the poverty line.
Netanyahu also highlighted the special police unit he had set
up to uncover welfare fraud, something that "everyone does,"
and in major cases can waste millions of shekels of
taxpayers' money.

-------------- --------------
Foreign Workers Removed to Make Room for Israeli Unemployed
-------------- --------------


4. (C) Netanyahu said that there is a relationship between
the 300,000 foreign workers that until recently resided in
Israel, and the same number of Israeli unemployed. "You
can't find a Jewish construction worker or a Jewish house
cleaner in Israel," he noted. Explaining that he did not
like some of the methods the GOI used to round up and deport
over 100,000 illegal workers, he said that their departure
was one-half the equation to bring Israelis back to work.
Palestinians should not replace the Romanian, Nigerian, Thai
and Philippine laborers who have left, he said -- it must be
Israelis, both Jewish and Arab, who take over vacant jobs via
welfare-to-work.

--------------
Potential in New PA, But Nothing Certain Yet
--------------


5. (C) In response to a question from Senator Lieberman,
Netanyahu said that he believes Israel could find itself in a
moment of opportunity for engagement with the Palestinians in
the wake of Arafat's death and the rise of new PA leadership.
Arafat represented the "worst of Arab Islamic tendencies, a
complete negation of Israel's existence," he said. Real
progress, however, depends on deep-seated changes within
Palestinian society, as well as reforms throughout the PA
that are similar in scope to what Salaam Fayyad has done
within the Ministry of Finance. In Netanyahu's view, a
change in leadership without these elements in place will be
nothing but "replacing a dictator with a more
benign-appearing dictator."


6. (C) On change within Palestinian society, Netanyahu
observed that Israel should not leave the territories without
dismantling the terrorist infrastructure and eliminating
elements of incitement. On PA reform, he said its success
depends heavily on American pressure. He was pessimistic
that Bush administration hopes of joint U.S.-EU pressure on
the PA would come to fruition, due to what he called Europe's
historic inability to see the extent of corruption within PA
ministries. Overall, he said, if Abu Mazen and the new
leadership can shape the PA into a "compliant and willing"
partner for peace, Israel will go to any length to reach
final status solutions. In the near-to-medium term, he said
that the GOI hopes that disengagement after Gaza withdrawal
can be negotiated, particularly the thorny and urgent issue
of air and sea access for goods entering PA territories.

--------------
Settler Resisters Threatening Rule of Law
--------------


7. (C) Netanyahu said he fears that the tens of thousands of
settlers that he said are threatening violent resistance to
evacuation from the Gaza Strip and parts of the northern West
Bank pose a "real danger" to the rule of law in Israel. He
explained that the situation is a tragic one no matter the
outcome -- if Israel does not respond to settler violence it
shows it cannot govern; and if it does respond, the ensuing
clashes could tear the fabric of Israeli society. He said
that the only way out of this dilemma is a referendum.
Sharon could win it hands down, he said, and it would force
more settlers to accept disengagement as the will of the
Israeli people, not just the Prime Minister.

********************************************* ********************
Visit Embassy Tel Aviv's Classified Website:
http://www.state.sgov.gov/p/nea/telaviv

You can also access this site through the State Department's
Classified SIPRNET website.
********************************************* ********************
KURTZER