MOF SOLIDIFIES ITS NEW TEAM

C O N F I D E N T I A L TEL AVIV 003378

SIPDIS

SIPDIS

NEA/FO FOR DANIN, NEA/IPA FOR GOLDBERGER, SHAMPAINE,
ZIMMER EEB/IFD FOR DIBBLE, GARRY, NSC FOR WATERS, TREASURY
FOR HIRSON

E.O. 12958: DECL: 11/26/2017
TAGS: ECON EFIN PGOV IS
SUBJECT: MOF SOLIDIFIES ITS NEW TEAM

REF: A) TELAVIV 3371, B) TEL AVIV 3336

CLASSIFIED BY: ECONOMIC COUNSELOR WILLIAM WEINSTEIN FOR REASONS 1.4 b
and d.

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Summary
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1. (C) After a very difficult year that saw corruption allegations
and high-level resignations due to scandal, the Israeli Ministry of
Finance (MOF) is reorganizing itself, bringing in people with
previous experience in the ministry to take over senior positions.
This attempt to reassert itself as one of the most professional
ministries in the government comes at a particularly challenging time
for those at the MOF and Bank of Israel (BOI) who run the Israeli
economy. First, there is widespread recognition of the need to
continue the economic reform program begun by Benjamin Netanyahu when
he was Finance Minister in the Sharon government, particularly the
liberalization of the capital markets. There is also a great
challenge posed by the efforts of some in the Knesset who want to
break the budget framework for the almost-approved 2008 budget and
begin to spend more freely immediately (see reftel B). The
re-establishment of an experienced and respected MOF team will allow
the ministry to deal with these issues spawned by the very success of
the economy in recent years (see reftel A).

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Ariav Capital Market Committee
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2. (C) Following two months of press reports, Finance Minister Roni
Bar-On and Governor of the BOI Stanley Fischer announced on November
22 the establishment of the Ariav Committee, headed by Yarom Ariav,
the DG of the MOF. Similar to the Bachar Committee established in
2004 and headed by then-MOF DG Yossi Bachar, the goal of this new
committee is to lay the groundwork to further develop and increase
competition in Israel's capital markets. While the Bachar Committee
succeeded in opening up the mutual funds and long-term savings plan
(similar to IRAs) industry and ending its domination by the large
banks, the Ariav Committee will try to build on that achievement by
focusing on increasing the efficiency of the non-banking financial
sector and encouraging competition within it.

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Bar-On Inherited a Mess
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3. (C) When Bar-On joined the MOF in the early summer of 2007, he
inherited a DG who had been on the job for only a few months. His
Budget Director, who was preparing his last budget, was planning to
leave within a few months. The Accountant General was an extremely
controversial and divisive figure who created a difficult working
environment in the ministry by hurling widespread accusations of
corruption. Finally, the Government Companies Authority Chief was
resigning, and there was no one to run the Israel Tax Authority.

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New MOF Team Solid
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4. (C) Now, Bar-On's team is much more stable. Only the Tax
Authority will still be lacking a designated chief by the end of the
year. The Accountant General, Dr. Yaron Zeleka, who regularly made
headlines with his numerous accusations of corruption against the
Prime Minister and many in the MOF , will be leaving the Ministry in
the coming days after a protracted battle to remain in his position.
In addition, Koby Haber, the tough-minded Budget Director, will be
replaced at the beginning of next year by Ram Belnikov, a former MOF
Budget Division staffer who was Minister Bar-On's DG at the Interior
Ministry. The incoming Accountant General, Budget Director, and Head
of the Government Companies Authority are all former Finance Ministry
staffers who left for the private sector, and are returning to assume
senior positions.

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Comment
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5. (C) The MOF, long considered one of the most professional
ministries, was badly shaken by the scandals and controversies of the
past year -- i.e. the resignation of Minister Hirschson and the Tax
Authorities Head in corruption scandals, and the many corruption
allegations put forward by the departing Accountant General.
However, Bar-On is assembling an experienced new team to reassert the
ministry's stewardship of the economy and its commitment to the
policy of fiscal responsibility in the face of increasing calls to
spend beyond the budget framework ceiling (see reftel B).