A whole crew of top treasury officials headed by Accountant-General Nir Gilad flew off to London and New York on Sunday for urgent talks with the credit rating agencies Standard & Poor's, Moody's, and Fitch, after learning that Israel is in serious danger of a sovereign credit downgrade.
The Finance Ministry well understands what a credit rating cut would do to Israel. It would weaken Israel's status in the international financial markets, make it harder to raise capital abroad, and make the capital pricier.
In fact, some of these processes are already happening. The downgrade would merely serve as official recognition of that fact. It would also deal yet another blow to the reputations of the finance minister and of his top officials.
In interviews Gilad gave the press on Monday, speaking from London, he divulged hope that the rating agencies would not hasten to downgrade Israel, or put it on the "negative watch" list, but would wait for the Knesset to approve the economic program currently under debate.
But if that's what Gilad is basing his hopes on, then the agencies might as well not bother to hang around waiting.
The economic program the treasury submitted is of little moment to the marketplace. It is unlikely to impress the analysts. Not only because it is based on raising taxes and increasing the deficit and government debt - but also because the treasury's repute has been savaged over the last year. Few economists believe the government will confine itself to its new, higher, deficit target.
Why is the treasury really trying to weaken the central bank?
The downgrade threat is an opportunity for the treasury chiefs to rethink the Governors' Committee bill that was brought up in the Knesset plenum Monday afternoon, only to be surprisingly withdrawn at the last second.
The bill, which was approved by the cabinet, weakens the independence of Israel's central bank and obscures the bank's goals, as it puts interest rates and other key issues under the purview of a panel of former governors, rather than leaving them in the hand of the incumbent governor.
Up to half a year ago, one might have believed the treasury's support for the bill was due to differences of opinion with the central bank regarding interest rates. But the way the bill was created and submitted arouses the nasty notion that the driving motive is a personal vendetta by the finance minister against the Bank of Israel.
The central bank lowered interest rates sharply over the last year. But the treasury-led fiscal policy has caused medium- and long-term interest rates to surge in recent months. Interest on Shahar-type unindexed bonds rose this year from 6.5% to 9% as investors began to fear a growing government deficit.
After initiating and pushing this bill that undermines the central bank's independence, the treasury people found themselves unable to shake off responsibility for the growing apprehension among investors, in Israel and elsewhere, of an inflation outbreak.
The rise in inflation expectations and consequent interest rate jump cannot be attributed to regional violence. No, this snafu had the treasury's writing all over it, which had elected to weaken the central bank's independence over prestige.
Just how did that clerk steal the bank, anyway?
Prime Minister Ariel Sharon had previously deflected treasury attempts to weaken the Bank of Israel. But now he smelled that public opinion was tending away from the central bank, and didn't miss the opportunity to slam it on Sunday for its handling of the Trade Bank embezzlement scandal. "I don't understand how you missed (it)," he scoffed at the government meeting that approved guarantees for the bank's hapless depositors.
True, the central bank's involvement in the Trade Bank affair was an embarrassment, and did nothing for its reputation. Nor has the central bank satisfactorily explained how a clerk managed to steal the whole bank under the watchdog's nose.
But Sharon didn't even wait 24 hours after lambasting the central bank to contribute some more to undermining the public's faith in the banking establishment. Yesterday the prime minister told Industry and Trade Minister Dalia Itzik that he rescinded his opposition to appointing Ra'anan Cohen as chairman of the Industrial Development Bank of Israel. With the road thus opened for this political appointment, in Monday afternoon the bank's board of directors unanimously approved the appointment of Dr Cohen ¿ an expert on Israeli Arabs.
To name a politician with no knowhow or experience in banking to the chair of a bank with NIS 4.5 billion of the public's money in deposits, a month after fellow small establishment Trade Bank went belly-up, is to spit in the face of Israel's savers and taxpayers.
When Trade Bank collapsed, the public's faith in the banking establishment and in the Bank of Israel's supervisory skills was damaged. To at least partly restore that faith, the government decided to compensate depositors by imposing an NIS 200 million bill on the general public.
And now, as we reel from the Trade Bank implosion and the resultant tax, we learn that the prime minister and industry minister couldn't care less. What does all that matter compared with another political appointment, another job for the boys?
Industrial Development's managerial board, comprising mostly professionals, is supposed to protect the bank. But it proved to be largely impotent, fearful, or perhaps simply apathetic.
Director Ronit Silon elected to step down last week. But the other directors, businesspeople one and all, concurred to a man that Israel could offer no better, more appropriate person as their leader, the chairman of the bank, than Ra'anan Cohen.
Could they too have folded under the political weight in fear of their jobs, and for the sake of contacts in the halls of power? Nonsense, can't be. It is their duty to do what is best for the bank.