Proposal for an Alternative Economic Policy
Author: Arnon Gafny Policy Research

The main characteristic of the economic policy adopted in recent years is severe fiscal and monetary restraint. The restraint policy, meant to lower inflation, has been pursued too long and too vehemently.

The monetary policy has actually strengthened the shekel against the dollar artificially, thereby slowing export growth and increasing the volume of imports. For most of this time and in most respects, the Bank of Israel has applied monetary policy and the Finance Ministry has invoked fiscal policy without coordinating their actions and without consensus.

The alternative economic policy proposed here is designed to extricate the economy from its lethargy, reignite growth, and boost employment on the basis of vigorous growth of exports, by revising the underlying strategy of the country’s fiscal and monetary policies. This section of the book also discusses needed reforms in taxation, the capital market, major economic infrastructure projects, and defense spending, which carries a major macroeconomic impact. The resumption of growth should be accompanied by a reduction in income-distribution inequality and the attainment of additional social goals.

The plan is based on the view that the current policies, if allowed to continue, will not lead to the desired turning point in the next few years. According to historical experience, the Israeli economy was lifted out of downturns by a combination of policy measures and exogenous shocks (the Six-Day War, mass immigration in the 1990s, etc.). As 1999 drew to a close, economic activity began to recover to some extent, but not energetically enough to induce the economy to utilize all of its production and growth potential.

This paper appears as a chapter in the Center’s annual publication, Israel’s Social Services 1999-2000, Yaakov Kop (editor).

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