Time to get reimbursed for a proxy war?
“Israeli economic sources in the US believe that the Bush administration will tend to be favorable to Israel exceeding the 1.7% threshold, if itâ€™s for one-time expenses, such as rearming the IDF, payment of compensation to victims of the war, and so forth.”
Bachar to test US reaction to possible fiscal expansion
Israeli Embassy source: Finance Ministry director general Dr. Joseph Bachar has no plans to submit a request to the US for special aid to cover war damage.
Ran Dagoni, Washington 24 Aug 06 12:11
Ministry of Finance director general Dr. Joseph Bachar will meet senior Bush administration officials in Washington tomorrow to discuss the impact of the Lebanon war on Israelâ€™s economy. Sources in Washington believe that he may raise a trial balloon for a green light from the US for a possible fiscal expansion of the 2007 budget framework.
A condition of the US loan guarantees to Israel is fiscal discipline by keeping certain economic variables unchanged, including a rise in government spending. US officials believe that providing loan guarantees to Israel requires the administration to closely monitor fiscal policy and performance by the Israeli government.
In the understandings reached with the US for the loan guarantees, Israel promised that government spending in the 2006 budget would not increase by more than 1% of GDP, which implies that this ceiling should be maintained in 2007 as well. However, the coalition agreements signed by the present government raise this ceiling to 1.7% of GDP. The Ministry of Finance notified the relevant Bush administration officials of this change, and obtained their consent. The US also recently agreed to extend the period during which Israel can use the loan guarantees until 2011.
Tomorrow, Bachar will want to hear from his interlocutors whether they can live with a 2% increase in Israeli government spending, for example.
“Bachar does not plan to submit tomorrow a formal request for the US to consent to exceeding the 1.7% threshold,” said an economic source. “This is an attempt to learn how the Bush administration will respond to such a request. This will be a feeler, to inform the Americans about the initial repercussions of the war on the economy, see by how much, if at all, they will be open to a certain easing of fiscal discipline in Israel, should it become necessary, what the significance is of such a measure and how will it be perceived in Washington.”
Israeli economic sources in the US believe that the Bush administration will tend to be favorable to Israel exceeding the 1.7% threshold, if itâ€™s for one-time expenses, such as rearming the IDF, payment of compensation to victims of the war, and so forth.
Bachar is visiting Washington with preliminary figures on the extent of the economic damage caused by the war in Lebanon. His visit coincides with wrangling between the Israeli government and various groups over the amount of compensation to be paid to people who suffered economic damage from the war. Obviously, no agreements will emerge from Bacharâ€™s meetings. “The Americans wants to listen, and we want to speak,” said an Israeli source.
A source at the Israeli Embassy in Washington told “Globes” last night that, belying reports in the Israeli press, Bachar has no plans to submit a request to the US for special aid to cover war damage. â€œNo staff work on this matter has been done,â€ said the source. â€œThereâ€™s not enough data. The subject simply isn’t on the agenda.â€ He added that such a request might be made later.
Today, Bachar will meet investors and analysts in New York. Morgan Stanley Dean Whittier, the underwriter for Israelâ€™s next issue in the US, will sponsor the main meeting. The issue is scheduled for late this year, at a date to be set at the last moment, on the basis of market conditions.
Although many Americans are on their summer vacations, Morgan Stanley said RSVPs for the meeting with Bachar were heavy. Managers of investment and pension funds and insurance companies are expected to attend. Bachar will hold a separate meeting with analysts of top US financial institutions. As with tomorrowâ€™s meeting with administration officials, he will try to sense the mood of US investors and analysts about a possible breach of Israelâ€™s budget framework.
Published by Globes [online], Israel business news – www.globes.co.il – on August 24, 2006
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