DEPUTY SECRETARY LEW'S SEPTEMBER 14, 2009 MEETING

C O N F I D E N T I A L STATE 098720

SIPDIS

E.O. 12958: DECL: 09/16/2019
TAGS: PREL EFIN IS
SUBJECT: DEPUTY SECRETARY LEW'S SEPTEMBER 14, 2009 MEETING
WITH ISRAELI FINANCE MINISTER YUVAL STEINITZ


1. (U)Classified by NEA Acting Assistant Secretary Ronald
Schlicher, reasons 1.4 (b) and (d).


2. (U) Meeting date, time and location: September 14,
2009, 3:15 p.m., Washington, D.C.


3. (U)Participants:

U.S.
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Deputy Secretary Lew
EEB Acting Assistant Secretary Dave Nelson
NEA Deputy Assistant Secretary Maura Connelly
Andrew Lentz, NEA Notetaker
Jennifer Butte-Dahl, D(L) Notetaker
Christopher Runyan, D(L) Notetaker


ISRAEL
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Finance Minister Yuval Steinitz
Ambassador Michael Oren
Account General Shouky Yehoshua Oren
Chief of Staff David Sharan
Senior Advisor Michal Finkelstein
Israeli Embassy CFO Zvi Chalamish
Israeli Embassy Political Counselor Oren Anolik
Israeli Embassy Economic Minister Asaf Vitman


4. (C) Summary: Israeli Finance Minister Yuval Steinitz
used his meeting with Deputy Secretary Lew to emphasize
Israel's interest in keeping the pressure on Iran,
maintaining its strategic global edge in high-tech
research and development, and requesting U.S. support for
Israel's bid for OECD accession. The Deputy Secretary
stressed the need for ISRAEL to address intellectual
property right (IPR) protections, particularly in its
pharmaceutical sector.
End summary.

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Iran
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5. (C) Steinitz stressed that time is running out on
confronting Iran's nuclear threat. "We are almost at the
last chance" for diplomacy, he said, and that it may be
necessary to "wave sticks to show our seriousness." He
urged the U.S. to pursue stronger sanctions on Iran as a
way to increase pressure. Deputy Secretary Lew responded
that the U.S. and ISRAEL share a common concern about Iran
and that ISRAEL should have no ambiguity about the U.S.
position. The Deputy Secretary stated that the
U.S. intends to maintain current economic sanctions and
that a decision to escalate will depend on the progress of
diplomatic initiatives. "Waving sticks" comes with its
own set of consequences, the Deputy Secretary cautioned.
While the U.S. is aware that there is not an infinite
amount of time for dialogue, he said, we must be willing
to give the process time to produce results.

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Israeli Economy
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6. (C) Steinitz expressed appreciation for U.S. loan
guarantees as a sign of U.S. confidence in Israel.
Steinitz reported that ISRAEL may not need to use loan
guarantees because it was only mildly affected by the
global financial crisis, an analysis that he shared with
Federal Reserve Chairman Bernanke during a previous
meeting this week. While pension funds and other non-bank
institutions stopped lending for a few months - and are
now fully recovered - Israeli banks continued to provide
credit throughout the crisis. Steinitz stated, however,
that shocks to the U.S. financial system have limited the
flows of capital for investment in Israel's high-tech
sector, which relies heavily on U.S. venture capital for
research and development (R&D). The risk to ISRAEL - and
to the U.S., Steinitz offered, given the history of
cooperation between Israeli and U.S. firms such as Google,
Intel, Motorola and HP - is that ISRAEL will lose its
strategic edge globally in high-tech R&D to nations like
India. He recommended that the U.S. and ISRAEL form a
joint committee of experts, either as part of the Joint
Economic Development Group or a separate committee, to
address shared interests in R&D, such as by developing
joint research centers and identifying innovative
financial mechanisms for investment. Steinitz mentioned
that he already has discussed this idea with the
leadership of NICE Systems, whose director could be tapped
to lead such a committee. Deputy Secretary Lew responded
that we would study the request.

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Intellectual Property Rights (IPR)
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7. (C) Steinitz seemed unaware of our concerns about IPR
when raised by Deputy Secretary Lew and EEB acting A/S
Dave Nelson. He deflected the issue saying instead that
he would appreciate U.S. support against political
objections to Israel's accession to the OECD. Deputy
Secretary Lew responded that ISRAEL can count on U.S.
support against specious political arguments, but that
U.S. concerns over Israel's lack of IPR protections mostly
in the pharmaceutical sector are real and ISRAEL needs to
address them. ISRAEL should not give countries who intend
to oppose Israel's accession on political grounds the
opportunity to hide their opposition behind a substantive
issue such as IPR protections, Lew warned. Acting A/S
Nelson added that lack of IPR protections also could
affect Israel's access to foreign direct investment in its
pharmaceutical and high-tech sectors.


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Palestinian Economic Development
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8. (C) Steinitz reiterated the GOI's and his personal
commitment to Palestinian economic development, stating as
proof that "economic peace" was a chief recommendation of
the transition team he chaired. He said that ISRAEL
already has taken significant steps to improve access and
movement, which he claimed has helped the Palestinians
realize five to six percent GDP growth this year. Unlike
the previous
Israeli government, he said, the government of PM
Netanyahu is intent on helping PM Fayyad and the
Palestinian
Authority, but that real improvement in Palestinian
quality of life likely would take one to two years to
manifest.
He complained that instead of getting credit, ISRAEL is
blamed for what is left to do, and the Palestinians are
not making reciprocal gestures to stop incitement and
improve security capacity fast enough. Lew acknowledged
the steps that ISRAEL has taken as a positive trend, and
emphasized the U.S. government's confidence in the reforms
and transparent institutions that Palestinian Authority
Prime Minister Salam Fayyad has undertaken.
CLINTON