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FM Silvan Shalom?

What are his economic beliefs?

On Tuesday, Israel may well have a new prime minister, Ariel Sharon. That's what the polls say, anyway. Who will he appoint as finance minister, the capital markets wonder.

Three candidates have been mentioned: Silvan Shalom, Meir Sheetrit and Yaakov Ne'eman. Sheetrit and Ne'eman have served as finance ministers in the past. Shalom has not and his economic manifesto is completely unknown, but the markets fear that he will be ratings-oriented, or, populist.

Silvan Shalom was born in Tunisia in 1958. He is married to Judy Nir-Mozes-Shalom, one of the shareholders in the Yedioth Ahronoth media empire. He has five children. He has degrees in accounting and law, and worked as the economics correspondent for the defunct Hebrew-language newspaper



Shalom began his political career as a junior aide to finance minister Yitzhak Moda'i. He has been a member of Knesset since 1992. The first signs of his economic beliefs appeared at a conference held last week by the National Economic Forum.

Unlike the incumbent minister, Avraham Shochat, Shalom supports expansive monetary policy that he believes will boost economic activity and lead to inflation within the government target range for 2001, of 2.5% to 3.5%. His policy could lead to a struggle with the ministry's Budgets Department. While Shalom will try to breach the budget, the department will try to cut it, based on the slowing economy and the anticipated drop in tax revenue.

Shalom is expected to toe the central bank's line

Shalom's recent statements regarding the Bank of Israel have been mixed. He does not believe the central bank should interfere in the currency market by depreciating the shekel in order to bolster economic activity. But he has stated that the bank should lower key lending rates and adopt a flexible monetary policy.

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The Bank of Israel has not forgotten that it owes one to Shalom. As acting chief of the Knesset's Finance Committee, Shalom opposed to moves to weaken the powers of the central bank governor and appoint a council to govern interest rates.

Shalom has indicated that he would like the central bank to lower interest rates faster than it has been. But sources familiar with him believe that once appointed, he will cooperate with the central bank and allow it to sustain its policy of lowering interest rates by creeping increments of 0.2% to 0.3% a month.

He supports the independence of the central bank, but believes it shouldn't operate in a void. Instead of being narrowly focused on monetary policy alone, it should collaborate with the Finance Ministry and factor in the government's budgetary policy, he believes.

Hurting Bezeq, and banks Hapoalim and Leumi?

Some market sources surmise that Shalom has his eyes on an eventual prime ministerial seat. If true, he would be reluctant to take decidedly unpopular steps, however warmly recommended by the experts. If he is indeed appointed finance minister, it will be interesting to see what he does with tax relief on mortgages, a proposal that both prime ministerial candidates say they support.

It would also make him doubly cautious about becoming embroiled in fiascos, as Shochat did with tax reform. Shalom isn't the kind of guy to run into brick walls, said one market source.

Ronen Avigdor, co-CEO of Nessuah Zannex, a Tel Aviv investment house affiliated with Piper Jaffray, says that given the choices available, naming Silvan Shalom as finance minister could be seen as a political appointment. He is not perceived as an expert in the way that Yaakov Ne'eman is, for instance.

But Avigdor believes that if appointed, Shalom will learn to balance economic pressures with political ones. On Silvan Shalom's statements about budgetary flexibility, Avigdor says, Shalom will learn that the market has changed. If Israel declares a shift to an expansive fiscal policy, the economy's status could suffer in the view of international investors. Increasing the deficit could affect Israel's sovereign credit rating, it could cause foreign investors to flee and even hurt the planned offerings by Bank Hapoalim, Bank Hapoalim and Bezeq.

Meanwhile, for all the speculation flying about, there are solid deadlines that will need urgent attention. The prime-minister elect will have 45 days to build a coalition, or Knesset will be disbanded and general elections called. And he and his finance minister will have until March 31 to pass a national budget for 2001 through Knesset, or the parliament will be disbanded and general elections called.