"As most of the 2001 US aid monies will be delayed, the 2002 deficit target should be reduced from 3% to 2.5%,¿ the Governor of the Bank of Israel said this morning. He believes such a step will increase the credibility of the deficit reduction pattern for which the government has opted.
The government ended 2001 with a huge 4.6% of GDP deficit. Had the US aid money come in time, the deficit level would have remained at 4.1%.
According to Klein, the definition of deficit is different in Israel compared with the rest of the world. The 3% deficit set by the government for 2002 is in fact 5% according to the system used worldwide.
The governor added the market would best benefit from the interest rate cut only if the government manages to maintain a downward deficit pattern.
"For the time being, the long-term interest rate has dropped by a little, reflecting the market's skepticism of the government¿s ability to return to a downward pattern."