(Communicated by the MFA Spokesperson)

Prime Minister Benjamin Netanyahu

OECD Secretary General Angel Gurria

Minister Yuval Steinitz

June 5, 2012

 

Prime Minister Benjamin Netanyahu: Angel, it’s very good to see you along with our colleague Finance Minister Yuval Steinitz. I welcome you again to Jerusalem. You have been a superb director of the OECD and of course one of your greatest achievements was getting Israel into the OECD. We never forget that and we appreciate your friendship, your cooperation, your honesty, your professionalism.

 

We were just speaking, the three of us, and I’d like to touch on the most important observations that we have. The first is, we’re still in a global crisis. Not only is it not over, it’s far from over. The second is that Israel up to now has done better than most of the OECD countries, indeed than most countries on the globe. And the third is that we’ve done better because we maintained the right policies. We had greater growth than the OECD. We have a much lower unemployment. We added 250,000 jobs in three years.

 

Why did that happen? It didn’t happen because the air is better here. It happened because we controlled our spending; we didn’t allow deficits to grow out of the ceiling; and we didn’t squeeze taxes sky-high because we realized we’d get more tax revenues from lower tax rates rather than the opposite. Many of the OECD countries, and you can tell me otherwise, Angel, would now have hoped that they had done this, these policies that were under attack in Israel, but that we clung to. If they had clung to them, I think they’d be in a different situation.

 

My point is that we’re still in the situation and the policies that have worked for us so far, are the policies that will work for us in the future: control spending; be careful and responsible; encourage growth; do reforms. We did the Trachtenberg reforms on education – free education. We’re doing the de-concentration reforms to allow more competition. We just opened the telecommunication markets to competition. Look at how prices are falling; and productivity will rise. People enjoy – they have more money in their pockets. Break up cartels, break up monopolies, control government spending, and don’t tax yourself to a recession.

 

These are the simple principles that we adhere to and they’re the ones that are responsible for the health of the economy, for producing jobs, for getting people in the job market – that is what is reducing poverty in Israel for the first time – the greatest rates in the last decade and poverty has fallen consistently for two consecutive years because people are joining the job market, and there are jobs to be had. And because we're helping with the increased revenues of the government to the old people, who can't join the job market and who deserve our help. That's why poverty is going down.

 

So there's no contradiction whatsoever between the right growth market policies, which are pro-market, and anti-cartels and social justice. They go hand in hand. The greatest danger that I see in Israel is the thinking that says that there is a contradiction – [TRANSLATION] there is no contradiction between responsible management of a free economy and social justice. There is no contradiction. Social justice cannot be attained is there is no growth. Growth occurs only if you manage the country's funds responsibly and you do not spend money without being able to cover the expense and if you don't tax the most productive bodies in a manner that makes it more worthwhile not to work – not worthwhile to work, not worthwhile to invest, not worthwhile to earn, and then the government doesn't get taxes.

 

There is an important balance and Israel maintained that balance. Israel overcame an enormous crisis with tremendous success, almost better than all the countries represented by the Secretary General of the OECD. We not only created a quarter million jobs, we experienced growth and we maintained the debt framework and even reduced it, where in other countries it increased. We managed it responsibly, with growth, more jobs and a reduction of poverty, because people entered the labor market and so we had more money to give to the elderly because of that growth.

These are important achievements. They do not guarantee anything unless we maintain our policies, and the most important distinction I heard today in my conversation with the Minister of Finance and Angel Gurria – the most important thing he said to us today: we are still in the midst of the crisis. Keep your responsible policies in place. Don't think that you can open up all your storerooms. You don't have that ability, keep with the successful policies that led you to this point. I'm sure you will hear this from him and from my colleague.

 

Minister Yuval Steinitz: Angel, you really became a hero in Israel and I can say with confidence that without you, without your dedication, without your friendship, Israel would not become a full member of the OECD. It’s only due to your efforts, to your dedication and to your friendship, unaware that this is your office, we became friends and this was also very helpful to the entire process. I think that the Chairman of the OECD, Angel Gurria, is here to warn us, as the Prime Minister emphasized. It is still a very dangerous, an extremely dangerous world, that the Israeli economy despite the relative success so far following the initial blow of the crisis of 2008, 2009 – we were growing almost 5% in 2011; we produced, allow me to correct you a little bit Mr. Prime Minister, almost 300,000 jobs, since the establishment of the new government.

 

Prime Minister Benjamin Netanyahu: …a positive correction.

 

Minister Yuval Steinitz: So far from April 2009 to April 2012, to produce almost 300,000 new jobs instead of 150,000, which is the average in a regular year. So we produced double the amount of new jobs than in regular times. And most significant of all, the level of investments in the real economy in Israel, after going down in 2009, jumped by 35% together in 2010-2011, which is the secret of our rapid economic growth. But we got a very clear warning from Angel Gurria, that this global economic war is still out there, that the world is still extremely dangerous, especially following the events and the problems in Europe and therefore the main mission of defending the little Israeli economy and its citizens, from the fate of other countries – in America and in Europe, like Spain, like Greece, like even France or Britain or United States or Italy or Ireland, or Portugal – this is still the main issue, this is still the main priority. And in order to achieve this we should keep the same policy including keeping the budget framework, the fiscal rule and reasonable deficit, because this is a necessary condition in order to keep the relatively good achievements of the last three years. Now I’d like to say a few sentences in Hebrew.

 

[TRANSLATION] I think that this visit is extremely important. I ate with Angel Gurria last night and today in the meeting with the Prime Minister. Not that we are unfamiliar with the details, but in the most tangible manner, from a man who stands at the center of the international economy and who is in contact with the G7, the G8 and the G20, and in light of the crisis in Europe – we received a very severe warning that the global crisis has not only not disappeared, but there is a very real danger that it will grow stronger and that the threat to our national economy and to the citizens of Israel still exists.

 

Therefore, our main mission was and remains – and this is our top priority – reasonable growth, positive growth and as high as it can be, along with low unemployment. If we do not maintain budgetary responsibility – he repeated this over and over again: if you do not maintain budgetary responsibility, not breaking the budgetary frameworks and a reasonable deficit that appears under control (it can move this way and that, but it must appear to be in control) – if you do not maintain these things, you will endanger Israel's economy and its citizens. If you do maintain it, you will be able to continue growing and protect Israel's citizens from the difficult economic blow that citizens of other countries are experiencing. From this standpoint, this is a very important visit because it sharpens and makes tangible these things and the external threat that still faces us, that threatens our economy, and therefore our citizens in the best manner. So this is an important visit which will help us understand the international environment in which we find ourselves and to help finance our work responsibly and accordingly.

 

Thank you.

Secretary General Angel Gurria: Prime Minister, Minister, Ladies and Gentlemen, I suppose, out of courtesy, I should start by saying to my hosts that they have done very well, exceptionally well, in a very, very difficult world economy. The fact that you grew at all in a year like 2009 – you were in decline and then you recovered very fast to close to 5% in 2010 and 2011. You're going to be above 3% this year, closer to 4% next year. This is quite exceptional, and it is double or triple, depending on which part of the world you see, in terms of speed.

 

We are also looking at relatively tame inflation numbers. The unemployment rate is coming down.

 

You just saw what happened with the United States last week. It went up. In Europe, unfortunately, it is still going up, closer to 11% in the Euro area on average. And of course, if you took the youth unemployment, then you would not take 11%, you would take maybe 20%, 25% average, and in some countries 30%, 40%, even 50%. You're talking about OECD countries, the youth.

 

Deficit-wise and debt-wise: what is happening with the debt in the OECD countries? We just went through 100% of debt to GDP. We started at about 70% in the '70s before the crisis. We have added like 30% more and in the case of Israel, it is coming down from about 80% and now, in the last few years, to slightly above 70%, and with a plan to continue to come down. So you are really moving in the right direction under very, very difficult circumstances. I would only say: stay the course. That is the way to go.

 

These are signals. This is a language. This is not just virtuous fiscal prudence, which you must have, but it also, in the present circumstances, is much more than that. It is an asset. It's a precious asset that you have to keep and that you have to preserve and you also have to make others know that you are practicing it – the translation and the logic for the Israeli people first, but then to the rest of the world why you are doing it, why it is necessary. It's a differentiation of the product in a time when products need to be differentiated very badly because the assumption normally is that things are going to get worse, and in the case of Israel, the numbers are looking better. You have a path in terms of deficits. Then of course, there is a combination of keeping the path – which means revenue, which means expenditure, which means dismantling some privileges of the past – whatever. This is a test that is happening everywhere, but I have to say that staying the course has rewards, and that today, it is something which the markets not only value, but take the opposite, take the alternative.

 

When the markets see weakness, when the markets see a lack of resolve, they immediately pounce, and they go for the jugular. You are familiar here with heat-seeking missiles – I think what we have in the market today are weakness-seeking missiles that are ready to hit you the moment they see that there is some vulnerability. So I would say, let's give those signals about resolve; let's give those signals that we are staying the course, because out there, it was bad enough and it may get even more complicated in the months to come.

 

It's like preparing for a storm, you know? You see storm warnings. Well, you start closing the windows of the ship and you trim the sails and everybody gets on their raincoats, and you hold on and you prepare. And by the time it comes, you will do better.

 

Last time I came here, I mentioned the Avis Rule. The Avis Rule means that we are number two, so we try harder. Well, that continues to be very good advice, and I come from a number two country also, from Mexico, and we are, like Israel, doing quite well in Mexico with the growth and with the employment creation, etc., but the vulnerability of open economies is very great because who buys the stuff? Well, the other countries, they’re not growing, the other countries that are not investing, the other countries that don’t have a level of confidence in where people are saving or deferring the investment decisions, etc. I would say that everything points in that same direction, and it's also because you don't just have 100% deficit GDP in the OECD as an average. It's because you have some countries that are going into the 120%. Already, Greece is 160%, Japan is 210% and probably still growing. And this is a problem. This has not stopped. These numbers are going to get larger, so continue making them lower.

 

You spoke, Mr. Prime Minister and Mr. Minister, about the budget framework and the fiscal rule. It's good to have one and it's even better to stick to it, because again there's a direction. There's an expectation. There's a certain predictability which in these days has a premium attached to it, has a bonus attached to it. And then you say, well, if we will not have the stimulus already Central Banks have, although here your Central Bank has been very careful to avoid inflationary expectations, most of the interest rates around the world are very low. We are all taking care of the budget's fiscal consolidation etc., so well, where to go?

 

Well, there's still a lot of work to do: to go structural, to look at education, to look at innovation, to look at competition, to look at deregulation, to look at decentralization. We're just going to deliver – about regional development – a report about the Negev, about some development, about clean tech clusters in the Negev. You also have a liberalization of labor markets, a liberalization of product markets. The health system, the tax structure – all of these are things that you can look at, and normally they say, "But we are in an emergency". Short-term, we have to take short-term decisions. These are long-term issues. You would be surprised to see how much these "long-term issues" produce short-term results, or in a lot shorter period than you would think if the communication is right, if the translation is right, if the education is right, if people understand where you're going, you will start to get a confidence bonus earlier and the short-term costs will be reduced. Sometimes I say, quite paradoxically, because we run out of room on the monetary policy side and on the fiscal side, the best short-term policies are structural policies, which is a bit of a paradox, but that may be the case.

 

The last comment I would like to make, Mr. Prime Minister, is: you have been a champion of steadiness and have chosen this path. Sometimes it is not so popular. Sometimes it is not so politically productive to go down this path. I can only tell you, in the end, it is the one way in which Israel is going to make it possible to be in a position to have an even stronger social capacity, a capacity to respond to the social demands which are legitimate. They are there; we know them very well at the OECD. Remember, two years ago we delivered a study about social cohesion in Israel, about labor policies in Israel, so we are familiar with these issues. We follow them very carefully. But the question really is: to be in a position to better respond to these demands, you have to have the fundamentals very, very strong. And that, I think, is the way to go.

 

So again, congratulations. As we say, not a lot of complacency – a pat on the back and move on. Okay?

 

Thank you.