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Advice for the PM

Don't be cowed by the jargon. Say it straight: The budget must be cut

1. Congratulations, Prime Minister. For your decision last week to devote more of your attention to the economy, that is.

Even if it's based on the political consideration that the economy will take center stage in the next elections, greater involvement by our PM in the marketplace is always welcome, mainly at hard times like this, which require tough decisions. You can't leave it up to the finance minister.

But make no mistake, you don't have to replace the finance minister. Your job is to help him, to back him, and mainly to make the other ministers recognize not only his power but that you're standing firmly by him. Don't undermine him by closing deals behind his back, Prime Minister.

Circumventing him may make you short-term political hay, but you'll pay a long-term price. A weak finance minister leads to weak economy policy.

2. Relax. Don't believe everything you hear. Remember that you aren't to blame for all the last year's dreadful economic developments. Certain left-leaning economists and analysts allow their political persuasions to color their analyses, which is why they charge you with ruining the economy, but it isn't so.

Most of that surge of economic growth in 1999 and early 2000 was artificial. It was created by that technology bubble that inflated economic activity. But economic activity had begun to decelerate already by the fourth quarter of 2000, while your predecessor Ehud Barak was still in power.

Nasdaq's collapse wasn't your fault, nor was the global recession, just as Barak & Co. weren't responsible for lifting Nasdaq in the first place.

3. Your stint as Industry Minister led you to develop powerful intuition, even if you don't know a thing about economics. Thing is, you have to do exactly the opposite of what your intuition tells you. You're a bulldozer. You like to push, run, progress, check out the facts in the field to ensure things are happening. Don't. You don't need to.

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The field isn't roadworks or construction sites any more, it's the Knesset's Finance Committee. That's where things need to be prodded along, that's where bombshells lurking latent need defusing, that's where you should employ your talents to ride over MKs trying to protect the weak ¿ at the expense of the entire economy.

4. Don't believe the slogans trumpeting the need for investment in infrastructure or education. That isn't what will help Israel's economy. The yield from another road or classroom is nothing compared with the yield from reforms that would expose whole sectors to competition.

Yesterday's decision not to privatize the Haifa and Ashdod ports will inflict far more harm on the economy than would the cancellation of some road or intersection.

As for education, the problem isn't a lack of budgets, it's inefficiency. Israel has more teachers per pupil than any other western country, which evidently isn't the answer. There are plenty of resources, it's just that they are foolishly allocated.

5. Don't obsess about the Bank of Israel's interest rates. It's a waste of your time, for three main reasons: 1) The Bank of Israel won't bend to your dictates, even if it pays lip service to your demands. 2) Central bank lending rates will drop in the coming year anyway. 3) Even faster interest rate cuts won't substantially boost economic activity.

6. Don't listen to those ministers urging more social spending.
Summon Dr Momi Dahan, an expert on social gaps and socio-economic policy, and until recently a Finance Ministry adviser. He'll show you that all too many legislative proposals designed to benefit the weak are made by MKs bereft of economic understanding, at best, or guilty of hypocrisy, at worst.

7. Don't be intimidated by the jargon slung at you by officials and academics. Your task is simple: To look the people of Israel straight in the eye and admit that the economy is in the pits and that the 2002 budget must be slashed to comply with the true low level of economic activity.

The atmosphere of crisis may do you no favors in the polls, but it's good when you need to push through unpopular decisions. This is the time to ram through reforms. This is the time to tell the people that the Histadrut labor federation ¿ the biggest union in Israel ¿ does not actually act for the unemployed and weak, but the powerful, well-padded labor representatives. This is the time to amend all the ills you so loved to attack, Prime Minister, before you held the reins of the economy in your hands.