VPM OLMERT PREDICTS HIS OWN POLITICAL FUTURE, AND

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 006279

SIPDIS

E.O. 12958: DECL: 11/03/2015
TAGS: ECON ETRD EFIN KIPR IS ELECTIONS GOI INTERNAL ECONOMY AND FINANCE
SUBJECT: VPM OLMERT PREDICTS HIS OWN POLITICAL FUTURE, AND
THAT OF THE 2006 GOI BUDGET

REF: TEL AVIV 06247

Classified By: Ambassador Richard H. Jones for reasons 1.4 (b) and (d)


1. (C) Summary: During an October 31 introductory meeting
Vice Prime Minister Ehud Olmert (who also is acting Minister
of Finance and Minister of Industry, Trade, and Labor) told
the Ambassador that the Israeli economy was performing well,
and that his challenge was to figure out how to spend a
revenue windfall before the end of the year. Olmert
identified solving poverty as priority number one for his
expected term as Minister of Finance. Regarding pending IPR
discussions over the Patent Term Extension (PTE) legislation,
Olmert was hesitant about becoming involved in negotiations
because of what he described as a "slap in the face" from the
U.S. during the Special 301 review. Olmert concluded the
meeting by appealing for action on the GOI's request for Gaza
disengagement assistance for Negev development. End summary.


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Acting Minister of Finance
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2. (C) Olmert told the Ambassador that it was unlikely that
his appointment as permanent Minister of Finance would be
approved by the Knesset the week of October 31, because some
Likud members who consistently opposed Sharon on
disengagement are determined to vote against a package of
ministerial appointments that they claim reward MKs who were
loyal to PM Sharon during disengagement. The contentious
appointments include MK Roni Bar-On to replace Olmert as the
minister of Industry, Trade, and Labor and MK Ze'ev Boim to
serve as Immigrant Absorption Minister, a position now held
by Minister of Justice Tzipi Livni. Olmert said that he was
uncertain whether, if the appointments failed to win Knesset
approval on October 31 (as they did, see reftel),the PM
would seek separate approval for his nomination in a second
vote or if he would again put the nominations forward as a
package. Ever confident of his own political standing,
Olmert said that his appointment would easily garner 70 votes
in the Knesset if brought without the other nominations.
Olmert also commented that the vote on ministerial
appointments would be a good indication of the prospects for
the 2006 budget. (Note: Several hours before the October 31
vote, lacking a Knesset majority, Sharon decided to delay the
vote on the nominations by one week. End note.)

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The Budget
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3. (C) Responding to a question from the Ambassador regarding
prospects for the 2006 budget, Olmert said that there would
be no change in the basic framework of the budget for 2006,
but that he was considering whether a 1% growth in
expenditures would be sufficiently large during subsequent
years. Olmert noted that the 1% cap reflected fiscal
discipline that Israel chose to impose on itself to help
control the rising deficit and the ever-present temptation by
the government to overspend. While acknowledging a 107%
debt-to-GDP ratio, Olmert questioned the logic of holding
spending growth below population growths. Olmert cited a
1.7% increase in real population last year, while government
expenditures rose only 1%, resulting in falling per capita
government spending. Olmert also noted that GOI Central
Bureau of Statistics forecast 5% GDP growth in 2005, and his
new responsibility was to figure out how to spend the
unexpected windfall.

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The Poverty Report
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4. (C) Olmert reiterated his commitment to acting on the
poverty report, citing it as priority number one. When
questioned by the Ambassador about the decrease in
unemployment figures, Olmert responded that the numbers do
not always tell the full story, as many of those who are no
longer listed as unemployed are employed in part-time jobs.
Olmert was complimentary of former Finance Minister Netanyahu
for his reform agenda, but said that he was committed "to
helping correct the social price that some economic reforms
created." He also noted that the positive effects of many
reforms, such as the port privatization and Bachar capital
market reforms, would not be felt for several years due to
long timelines for implementation.

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Trade and Investment
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5. (C) Olmert said his next highest priority is enhancing
economic growth. He said that "high tech is the name of the
game," and described a $5 billion investment that Intel is
expected to make in Kiryat Gat as the type of partnership for
growth that the GOI wants to support. Indeed, the GOI has
agreed to grant nearly $600 million to encourage Intel to
build its Fab-28 plant there. Olmert said that he expected
more than 2,000 jobs to be generated by the new investment.
On broader commerce issues, Olmert reiterated his plans to
remain involved with the business community, saying that "if
I'm here (MOF) or if I'm there (MOITL),I'll still be helping
to run (our trade policies)."

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Why should I negotiate for a slap in the face?
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6. (C) Olmert visibly bristled when the Ambassador broached
the topic of intellectual property rights (IPR) protection in
Israel. Olmert told the Ambassador that it is difficult for
him to convince other GOI ministers to engage in IPR
negotiations with the U.S. when "I tried to make a deal and I
got a slap in the face." (Comment: This is not the first
time that Olmert has expressed to USG officials that he has
taken personally placement of Israel on the Priority Watch
List during 2005 301 Review. End comment.)

7. (C) On other bilateral trade issues, Olmert was more
upbeat, noting positive progress on long-standing standards
problems. Olmert reminded the Ambassador that, out of
respect to USG concerns, Israel has still not joined the EU
standards organization. The Ambassador thanked Olmert for
the positive work that has been done so far, but emphasized
the need to look towards comprehensive solutions to the
standards issue. Regarding government tenders, Olmert said
that he wanted to be made aware of any complaints or cases
that were not quickly resolved by working-level officials in
his ministry. Olmert claimed that often when U.S. companies
do not win GOI tenders, it is because they choose to bid via
European subsidiaries for their own reasons, e.g., to
minimize tax bills.

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Aid for Negev Development
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8. (C) Olmert concluded the meeting by asking about the
status of the GOI request for USG assistance for Negev
development. The Ambassador noted the GOI decision to
postpone technical discussions in the aftermath of Hurricane
Katrina, and said that the next step in the process was for
the GOI to respond to the USG technical questionnaire. The
Ministry of Finance plans to submit answers to the
questionnaire on November 7. Olmert underlined that USG
funding for Negev development is an integral part of the
disengagement plan, and would not soon be forgotten in Israel.

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