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Tuesday, November 28, 2006

The export prime minister (Israel has positive Balance of Trade for the first time)

The export prime minister

By Nehemia Shtrasler

The prime minister was in top form: In festive remarks delivered at last
week's Galilee Conference in Carmiel, he roundly praised the export miracle.
"This year I can tell you," Ehud Olmert declared, "that this is the first time
in the history of the state that Israel's balance of payments has been
positive, with exports exceeding imports by $6 billion."

"Beside me here is Stef Wertheimer," Olmert continued enthusiastically. "Stef,
we have realized the dream about which you spoke: exports, exports and more
exports. You told me when I was minister of industry, trade and employment:
'Don't pay any attention to what people are telling you. It's all nonsense
apart from exports, exports and more exports.'"

The truth is that 2006 really has been a special year. It will be the first
year in which exports exceed imports, by $1.5 billion. In other words, there
will be an export surplus. Thus the surplus in the current account of the
balance of payments will indeed be $6 billion - thanks mainly to grants from
the United States, reparations from Germany and gifts from Diaspora Jewry.

A generation ago, economists believed that economic independence meant
achieving an export surplus. We have realized that vision and achieved an
export surplus. But have we also achieved economic independence?

Not exactly. The definition of an export surplus as a measuring rod for
economic independence was appropriate for years in which the foreign exchange
rate was fixed and controlled by the government, which also determined the
pace of devaluations. Now, however, the exchange rate fluctuates freely, so
there must be a balance between exports and imports, because the absence of
such a balance causes the exchange rate to fluctuate and "orchestrate" such a
balance over time.

This means that an export surplus no longer serves as a symbol of economic
independence. This can easily be demonstrated via a comparison with the U.S.,
which suffers from a tremendous deficit in its balance of payments (and
therefore, the dollar has weakened against the euro). Does this mean that the
U.S. is not economically independent, but we are?

Of course not. After all, every so often we go to the American government with
a shopping list and request an airlift of goods, special grants, generous loan
guarantees or a veto on United Nations resolutions calling for sanctions
against Israel. The fact that America supports Israel signals to the world
that it is not dangerous to do business with us.

We are therefore very far from economic independence. Our economic situation
is still fragile and is very dependent on American support, as well as on the
progress of the peace process.

What was particularly funny about Olmert's address, however, was his attempt
to take credit for the great achievement of the export surplus. To this end,
he even mentioned his actions as industry, trade and employment minister.
Nothing could be further from the truth.

The export revolution began in Israel in 1991, when the government opened the
economy to competition from imports from all over the world. This openness was
the reason that the Israeli economy, which previously specialized in
traditional industries such as textiles, wood, iron and leather, switched to
high-tech industries, which are pure export industries with high added value.
Olmert had no connection with that at all.

Over the past three years, another revolution took place, thanks to Benjamin
Netanyahu. He cut the budget, lowered taxes and implemented privatizations and
reforms. All these were tremendous growth engines for the private sector and
for exports in particular. Not only did Olmert have no hand in this
revolution, he opposed every single step proposed by Netanyahu and even
proposed some pretty poor alternatives.

Yesterday, in another ceremonial address at Sde Boker, Olmert appealed to the
Palestinians, calling on them to "advance toward peace." In addition to
promising them various things, he mentioned the tremendous economic benefits
that they would reap from a halt to the violence and terror.

But Israel, too, would reap significant economic benefits from halting the
violence and terror - because only when peace reigns will we be able to let go
of America's apron strings and achieve true economic independence.

Copyright - Original materials copyright (c) by the authors. Originally posted at Please do link to these articles, quote from them and forward them by email to friends with this notice. Other uses require written permission of the author.


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