Merrill Lynch International president Jacob Frenkel said today that only deep budget cuts can help extract the Israeli economy from recession, not efforts to consolidate a package deal between government, business and labor.

Speaking at an annual seminar of the Finance Ministry budgets division, Frenkel ¿ a former Bank of Israel governor ¿ said that no such "package deal" can restore economic growth or create jobs. "It could supplement correct government policy" leading to interest rate cuts, he added, but no more.

Frenkel said that the government should examine every shekel it spends to see whether it supports growth and job creation. The key to growth, Frenkel advised, is investment based on long-term vision, not patchwork solutions to immediate problems.

He added that the government must have the discipline to stay within its budget constraints.

On the treasury's current growth forecast for 2002 of 4% of GDP, Frenkel said that correct policies could support growth of 1.5% to 2%. But, he added, there is a chance of stronger growth than currently expected.