YUVAL STEINITZ NAMED FINANCE MINISTER

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TAGS: ECON EFIN PGOV ELAB IS
SUBJECT: YUVAL STEINITZ NAMED FINANCE MINISTER

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Summary
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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.

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Philosopher to Military Strategist to Minister
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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.

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Mixed Reviews on Appointment
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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.

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Is Netanyahu the Super Finance Minister?
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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.

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Maintain Budget Discipline
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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.

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Corporate Bond Bailout
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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.

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Budget Approval
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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.

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First Meeting with MOF Officials
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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