By Moti Bassok, Ha'aretz Economics Correspondent
2000 was a prosperous year for Israel, the kind of year finance ministers love. Annual growth soared to 6.4% and export of goods and services leaped by 23.9%. Other indicators were also enviable.
As the year ended, the boom was lowered, so to speak. The intifada broke out. The world economy imploded and Nasdaq started to slide.
By the fourth quarter, the data had turned dire. GDP shrank by 9.9% and exports had almost halved. Yet Israel did not fully digest the significance of the developments. As the Finance Ministry chanted, "We're more worried about events on Nasdaq than what happens in Gilo" ¿ a Jewish neighborhood in Jerusalem subjected to Palestinian sniping.
Going over developments since 2001 began is a frustrating experience. It looks like Israel strode wide-eyed and bushy-tailed straight into the abyss. The following are the main points in which our economic leaders proved not only penny-foolish but pound-idiotic too.
• On January 22, 2001, Israel still had no budget. Finance Minister Avraham Shochat tried to push through the previous year's budget prepared under Prime Minister Ehud Barak, with no changes. That would have annulled populist, expensive legislation passed during 2000. The PM-to-be, Ariel Sharon, and his party, Likud, refused. They are still eating their hearts out over that mistake.
• January 30, 2001. The elections were mere days off. The Finance Ministry and Histadrut labor federation signed an agreement promising the public sector a 3.6% rise in wage.
• February 6, 2001. The elections are held. Sharon crushes Barak.
• February 19, 2001. In a meeting with businesspeople at his home, two weeks before being named prime minister, Sharon says he plans to increase the government deficit in 2001 by 0.75% to 2.5%.
• March begins and the new finance minister, Silvan Shalom, throws out the tax reform prepared under his predecessor.
• March 14, 2001. The ministerial panel appointed to annul partisan private bills holds its first and last meeting. No decisions are reached. Bills costing the taxpayer NIS 1.5 billion a year haunt the government and the budget to this day.
• March winds down and the government passes a budget for 2001. It's the one prepared by Barak.
• May 20, 2001. Non-defense ministries are forced to swallow an NIS 2.8 billion budget cut, or, 4% of each of their budgets, in order to beef up defense spending. The government agrees to suspend the law increasing benefits for large families. It never does.
• June 21, 2001. The prime minister tells an economic conference that he plans to amend the Bank of Israel law. Three days later the PM's economic adviser Gabi Fishman quits. Sharon remains with no economic adviser.
• June 25, 2001. The Bank of Israel governor attacks opponents of plans to abolish the band-of-mobility regime controlling the shekel-dollar rate.
• July 15, 2001. The government holds its first debate, of an infinite series, on the 2002 budget. The finance minister, Silvan Shalom, assures the government that the economy will grow by 3.5% to 4% in 2002.
• Come August 7, 2001, in yet another government meeting on the budget, the finance minister retains his rosy outlook. Ministers say he's lost touch with reality. Shalom attacks the Bank of Israel guv's interest rate policy and claims unemployment will exceed 10% in 2002.
• September 3, 2001. The government decides to raise its deficit target from 1.75% to 2.4% of GDP.
• September 11, 2001. The government decides that the 2002 budget will consist of NIS 256.9 billion, and resolves to cut ministerial budgets by 1%. The large families law is suspended, again.
• Later that same day, Israel time: Islamic terrorists attack the United States. The Twin Towers in Manhattan collapse, a plane crashes onto the Pentagon. The Bank of Israel governor tells Ha'aretz that tragic as the events may be, they will have only very limited effect economically.
• September 16, 2001. The government finally approves the 2002 budget: NIS 245.6 billion. The Shas party objects.
• September 30, 2001. The IMF says the Bank of Israel should lower interest rates more energetically.
• October 11, 2001.The IMF lowers its 2002 growth forecast for Israel to 2.8%.
• October 29, 2001. The Finance Ministry presents its 2002 budget to Knesset, consisting of NIS 254.8 billion. Minister Shalom, still ensconced in his rosy world, assures that if parliament passes it untouched, 2002 will be a turning point.
• December winds to a close, the budget hasn't been approved, a huge NIS 6.15 billion budget cut enters the serious-planning stage. The treasury talks about raising the deficit target to 3% of GDP, and lowering its growth estimate from 4% to 2%.
• December 23, 2001. Newsbreaks of a package deal in which the government would cut the budget by NIS 6.15 billion, and the Bank of Israel would lower lending rates by 2%. The PM promises No New Taxes.
• December 24, 2001. The government passes the massive cuts in the budget that it had approved just three months before, 22 to 6. Shas opposes. The government acquiesces to Shalom's call to impose a special tax on the wealthy, and to cut child allowances.
• January 15, 2002. Inflation in 2001 came to 1.4%. The Finance Ministry attacks the Bank of Israel for coming below the government's inflation target for the third year running.
• January 20, 2002. The government approves the recommendations of the Rabinowitz committee on land-tax reform. Critics cavil that the government will be handing out NIS 700 million a year to builders.
• February 26, 2002. The second Rabinowitz committee, on income tax reform, presents its recommendations. Shalom promises to accept them.
• March 1, 2002. The central bank governor warns against jamming one's head into the sand. There is a limit to the devaluations the marketplace can stand, he says, without raising prices. We've passed the red line, he warns.
• March 9, 2002. The prime minister and finance minister propose that interest rates be governed by a panel of ex-central bank governors instead of just the incumbent one. The central bank governor blows his top.
• March 17, 2002. The government passes the new Bank of Israel law, 17 to 1.
• April 28, 2002. The government decides, again, to tinker with the 2002 budget. This time it plans an NIS 13 billion budget cut, and to ¿ you guessed it ¿ suspend the large families law. The deficit target is raised to 3.9%.
• May 2, 2002. Bank of Israel governor David Klein warns that Israel's economic performance in 2002 will be even worse than it was in 2001.
• May 14, 2002. O happy day! First-quarter growth surprises at 2.4%. Services and goods exports rose by 3.5%. Smiles at treasury, government.
• May 15, 2002. The Central Bureau of Statistics announces that the consumer price index rose 1.5% in April, 0.1% more than in the whole of 2001. Shock at treasury, Bank of Israel.
That's all, folks. For now. Stay tuned.