YUVAL STEINITZ NAMED FINANCE MINISTER

UNCLAS TEL AVIV 000800 SIPDIS NEA/IPA FOR GOLDBERGER, SACHAR; EEB/IFD FOR JACOBY; TREASURY FOR BALIN E.O. 12958: N/A TAGS: ECON EFIN PGOV ELAB IS SUBJECT: YUVAL STEINITZ NAMED FINANCE MINISTER -------------- Summary -------------- ¶1. Prime Minister Benjamin Netanyahu appointed Dr. Yuval Steinitz from the Likud Party to the post of Minister of Finance. Steinitz is a widely-published philosopher and thinker, with the reputation of being able to digest and make sense of complex issues. He is reportedly a fiscal conservative who wants to cut both spending and taxes. Steinitz is one of Netanyahu's closest confidants and is reportedly also very close to Netanyahu's wife, Sara. The appointment was not a surprise, as Steinitz headed Netanyahu's "100-day team," which laid out options for quick government action on important issues. Reaction to the appointment was mixed, with some commentators skeptical due to Steinitz's lack of background in economic issues and his lack of ministerial experience. Most of his prior experience was in defense and intelligence issues. In the past two Knesset terms he also served as Chairman of the Joint Security Committee between the Knesset and the U.S. Congress. Those defending the nomination note that Steinitz's very close relationship to Netanyahu will make up for his lack of experience and that he will receive expert guidance from the highly-experienced and professional Ministry of Finance staff. Regardless, Prime Minister Netanyahu himself will be deeply involved in economic affairs, as indicated in his taking the additional title of Minister for Economic Strategy. -------------- - Philosopher to Military Strategist to Minister -------------- - ¶2. Steinitz, 51 years old next week, holds degrees in Philosophy from Hebrew University and a Ph.D. in Philosophy from Tel Aviv University. He was a Senior Lecturer in Philosophy at Haifa University, and was reportedly considered an outstanding lecturer by his students. Growing up in a left-wing family, he was among the founding members of Peace Now in the 1980's, where he got to know present Ministry of Finance (MOF) Director General Yarom Ariav - also a founding member of the organization. In 1982, he was injured at a Peace Now rally, in the infamous incident in which demonstrator Emil Grunzweig was murdered. After the assassination of Yitzhak Rabin, Steinitz appeared to change his political views, publically defending Netanyahu, the Likud, and the right-wing camp against charges that they were responsible for the assassination. His relationship with Netanyahu began at that time. When Netanyahu resigned from the Knesset after his loss in the 1999 elections to Ehud Barak, Steinitz took his seat. A long-term parliamentarian, he is known primarily for his work on security and defense issues. Prior to this appointment to one of the three senior cabinet positions (along with Defense and Foreign Affairs),Steinitz served from 2003-2006 as Chairman of the Foreign Affairs and Defense Committee and also chaired the Subcommittee for Intelligence and Secret Services for part of that period. -------------- Mixed Reviews on Appointment -------------- ¶3. Although the appointment had been anticipated, negative reactions came quickly. Former Finance Minister in the Rabin and Barak Governments Baiga Shochat and his DG, Avi Ben-Bassat, were critical of the appointment in interviews on Israel radio. Ben-Bassat criticized Steinitz's lack of experience with economic subjects, noting that he never served on any economic or finance-related Knesset committees, and did not even have any business experience. Shochat reserved his criticism for Netanyahu, saying that the appointment of someone without the relevant experience to such a crucial job at a time of economic crisis was irresponsible. ¶4. Economic commentator Sever Plotsker wrote in Yedioth Aharonot on March 31 that "Dr. Steinitz is a man of many talents, an intellectual, a philosopher, but not an economist. Handing over the Finance Ministry to Steinitz is dangerous and infuriating." Galia Maor, CEO of Bank Leumi, on the other hand, said that "if the new Finance Minister listens to the professionals in the MOF, he can succeed." In a Globes interview, Teva Pharmaceuticals Chairman Eli Hurvitz noted the importance of a good relationship between the Prime Minister (PM) and the Minister of Finance and dismissed concerns that Steinitz's lack of economic background would impair his ability to do the job. Hurvitz said that in a recent meeting, Steinitz displayed such a mastery of the subject matter that he only realized in the middle of the meeting that Steinitz was not an economist. Justice Minister Yacov Ne'eman, who served as the Second Finance Minister in the earlier Netanyahu Government, also noted that the good relations between Netanyahu and Steinitz increased Steinitz's chances to be a successful minister. In an April 1 article, Ha'aaretz's Zvi Zacharia called Steinitz's lack of experience an "advantage" - noting that he is not "captive" to a particular economic world view, and therefore has an open mind. -------------- Is Netanyahu the Super Finance Minister? -------------- ¶5. Considered one of the most successful Israeli Finance Ministers for his reform of the economy and the his role in pulling it out of the 2001-2003 recession, Netanyahu has never hidden his ambition to have the job again -- along with the title of Prime Minister. He has stated several times since the elections that he would serve as Finance Minister, in addition to Prime Minister. This elicited criticism that the country needs a full-time Finance Minister during a time of economic crisis and that the demands of being PM will not enable him to devote the necessary time or energy to the Finance portfolio. ¶6. Two senior Likud party members have already served as Finance Ministers, Dan Meridor, who was the first Finance Minister when Netanyahu was PM in the nineties, and Silvan Shalom, who was FM in the first Sharon government, prior to Netanyahu's succeeding him in the post. Netanyahu did not select them for the job, in part, reportedly, because he does not have very good relations with them. Instead, he chose his close associate and confidant Yuval Steinitz. He originally considered giving Steinitz the title of Minister in the Finance Ministry, likely due to Steinitz's lack of economic background. According to reports, Steinitz told Netanyahu that this title would not give him the authority necessary to function and that everyone would bypass him and come directly to Netanyahu to deal with major issues. While Netanyahu did decide to give Steinitz the full title, he also gave himself the titles of Minister in Charge of Economic Strategy and Head of the Economic Cabinet. The significance of these titles remains to be seen. Regardless, Netanyahu clearly aims to remain a major player on all issues related to Israel's economy. -------------- Maintain Budget Discipline -------------- ¶7. While we do not yet have a full picture of Steinitz's economic views, he noted in an April interview with The Marker that it is important to maintain a policy of fiscal restraint and stay within the budget framework. He said that "we need to cut defense and prevent an increase in public sector wages in order to meet the target of reducing the deficit." Although MOF officials were reportedly concerned about Steinitz's hawkish image, Steinitz said in a recent interview that there is no choice but to cut the defense budget. A contact close to Steinitz told EconCouns that the new Finance Minister is interested in cutting the amount of money spent on IDF activities in the West Bank, which could dovetail with the emphasis Netanyahu is placing on encouraging Palestinian economic development. -------------- Corporate Bond Bailout -------------- ¶8. One issue that is likely to require the new Finance Minister's quick attention is dealing with the severe problems in the corporate bond sector. The 100-day team, which Steinitz headed, recommended providing government guarantees of-80 percent to institutional investors to purchase new corporate bonds issued by companies having trouble raising money - particularly a problem for Israel's "tycoons," who have suffered big losses from real estate investments around the world, especially in the U.S. and Eastern Europe. Steinitz's view is that the guarantees should be provided only for investment in companies that are basically healthy and can recover from the crisis with a bit of help. He apparently does not view it as a "tycoon bailout plan." He also believes that the guarantees should primarily assist companies whose main activities are in Israel - another condition that would preclude many tycoons from qualifying. ¶9. In the April 1 interview in The Marker, Steinitz also said that the Wisconsin Employment Training Plan should be extended to the entire country and that the number of foreign workers in Israel needs to be reduced significantly. He favors a negative income tax and thinks, as does Netanyahu, that taxes should be gradually reduced over the next four years. -------------- Budget Approval -------------- ¶10. The most urgent issue Steinitz will face is approval of the 2009 budget in the Knesset and presentation of the new Government's economic policies, including sharp budget cuts, which total more than NIS 20 billion, according to the press. The 100-day team reportedly recommended delaying approval of the budget for 90-120 days, indicating that the thinking is to submit a combined 2009-2010 budget. Approval of a 2009-only budget has to happen by May 15. Delaying budget approval by more than 45 days from the formation of the government will require an amendment to the Budget Bill. -------------- First Meeting with MOF Officials -------------- ¶11. Meeting with Finance Ministry officials on his first day in the office, Steinitz said that he felt very lucky to be serving as Finance Minister together with a Prime Minister who understands economics, loves it, and has extensive experience. He sees this as an advantage and a great asset. He also praised the Finance Ministry officials, who, he said, are known for their professionalism and dedication, and even criticized by some for their excessive professionalism. Steinitz said that he is open to hearing from all officials in the Ministry of Finance, wants to be a loyal partner, and intends to learn, consider, and then make decisions. The new Finance Minister said that during this time of global economic upheaval which is also affecting Israel, the people of Israel and State of Israel are watching. It is time to work harmoniously with the Prime Minister and his office, as well as with the Histadrut, and the Manufacturers Association. (Note: One of the planks of the Likud-Labor coalition agreement calls for the establishment of a social-economic forum, made up of the Government, the Histadrut Labor Federation, and the Manufacturers Association, somewhat akin to the German economic policy management model.) CUNNINGHAM