We are celebrating successes: The incredible development in IT, the great development in water technologies and the fact that you are now the country with the greatest component of knowledge in its GDP in entire the world.
Secretary-General Gurria: We are delighted to visit you today. We will be presenting the OECD Reviews of Labor Market and Social Policies for Israel as well as the OECD Economics Survey of Israel. Each review has been discussed in some detail with the relevant ministers and officials.
Tomorrow, as you know, in the Bible Lands Museum we will have a public presentation of both these documents in some detail. However, I would like to take this opportunity to note that we have spent time with the Prime Minister, who gave us the great privilege of his focused attention, comments, inputs and guidance. His input and guidance will certainly facilitate future work, both with and for Israel on some key issues that have been signaled to us as in order to continue this success story that is: Israel.
We are celebrating successes: The incredible development in IT, the great development in water technologies and the fact that you are now the country with the greatest component of knowledge in its GDP in entire the world. On top of this you were well-prepared to face this crisis because of your far-sighted regulators, supervisors and your bankers – we have to give them some credit too – who took prudent decisions in terms of what the banking system should and should not do as well as how far they should go. Therefore whilst the world faced the worst economic crisis in a lifetime, here, you experienced a modest yet still significant growth this year, or rather last year, in 2009. I always say that it is like getting a tie with Barcelona, you know – you would have preferred to win but, by God, it certainly feels like a victory even if you tie.
Indeed this formula works for any country that has a big victory – and our projection is about 3% growth – in 2010. Perhaps in 2011, we can move beyond this. The Israeli economy can continue to grow – it has relatively low inflation and a stable banking system – but there are a number of challenges which are the ones we have been focusing on. It is of course important to celebrate your successes – you do that very well without us – and whilst we focus on the challenges, at the same time, our aim is not to come here to tell the Israelis what to do with Israel. What we have come here to do is to inform the Israelis what everybody else around the world is doing about these same challenging issues that you are dealing with. We want to show you how these challenges manifest, how others are dealing with them, what works and what does not work. From this platform, of course, you then take the policy decisions that have to be taken.
Therefore we are most honored and privileged to have this opportunity, and of course we would like to say that this whole effort – the visit, the exercise, the publications, the work going on – is part and parcel of Israel’s accession process OECD. Our target for this remains 2010. Progress continues, there are of course some outstanding issues and all of them are in the papers today. There do not, however, seem to be too many secrets surrounding these issues; all of them are being worked on and all are surmountable with a combination of creativity, ingenuity, political will and good faith, all of which are abundant on all sides. We will be able to overcome them. Thank you.
PM Netanyahu: Thank you. Mr. Secretary, it is a pleasure to see you again. We have met at other times and in other capacities. I have to say that you bring a king of ‘renewable energy’ to the table. You are fired up with a clear vision of what needs to be done, not satisfied with ensuring the present, but keen to seize the future and this is indeed what we must do. Our association with the OECD is precisely meant to seize the future, and if you want to be a winner, you have to join the winners. If you want to be a leading economy in the world, then you must act like a leading economy. I believe that we can be a regional economic power and a global technological power, but we must accomplish certain things to assure ourselves a continued success.
By joining the OECD and by obtaining the benefits of the accumulative and measured experience that you have, we must tell ourselves: “Here is what serious countries do. Here is best practice in education. Here is best practice in regulation. Here is best practice in transportation. Here is best practice in labor mobility. Here is best practice in getting into the work force”. We discussed, by the way, all of these issues in some detail and I admitted something quite shocking to Angel: “I am actually going to read the material. I am going to read these books. This is something that can be tested. But if you quiz me, I’ll quiz you too.”
I will read them because I believe that, as in so many other areas that we discuss, I agree with you on most things. That really poses a problem – I seldom find myself in such broad agreement with someone. There are obviously one or two areas that we are still looking into, but I think the broad direction that you are talking about; of making the Israeli economy more competitive, giving our children a better education that suits the global marketplace, making sure that our financial institutions are run responsibly and making sure that we eliminate poverty by giving people a proper education combined with the ability and the incentive to join the job market, these are things that I think are terrifically important for Israel. Of course, we are not the only country that these things are terrifically important for, but I think that by joining you, we can have the benefit of those who have gone down that route.
So, I think it was about 12 years ago that I began activities – or at least started talking about it – when I was Prime Minister in my first term of office. I spoke about the need to enter the OECD, but back then, it was merely a distant dream. Now in 2010, there is a good chance, I hope, that this dream will be realized. I want you to know that we appreciate enormously the clarity of your thinking, the value of concrete experience and of success. Should we enter the OECD, we intend to work with you in very deliberate, very purposeful and very determined ways to have Israel, not only join the OECD, but move rapidly up the ladder in the OECD. Maybe we too can become an example for some other countries that you visit in the future. In any case, I want to thank you for your friendship, your professionalism and for all the benefits that you bring our people. Ultimately, I believe that you venture peace because a successful Israel, economically, will mean a successful economic neighborhood for our neighbors as well. Thank you.
SG Gurria: Thank you very much, Prime Minister.
Q: [About lowering taxes]
PM Netanyahu: OK, here is another shocker. The question of taxes actually comes in a place where we agree on – which is that Israel should not be satisfied with the fact that this year we will have an 80% debt to GDP ratio. The reason we should not be satisfied is – it is true, we went down from roughly 100% to 80% in record time. When I became Finance Minister in 2003, we were slightly over 100% and over a few years, we have gone down to 80%. And at the same time, the OECD went up from 60% and I believe it should pass us significantly this year, as occurred with the United States.
SG Gurria: We’re going to get to 100%.
PM Netanyahu: Yes, well, we are not at 100%. We went down and they went up. They’re going to be at 100% and we’re at 80%. By the way, the lower the number the better, as you know. So how do you lower the number? That is a point of some interest. It’s debt to GDP. You can lower it either by increasing the denominator or decreasing the numerator – both are valid and we are discussing both. And that’s how we view the tax issue, but it’s one of the things we agreed that we’ll continue to discuss. That is out of about 12 main issues that I wrote in which we stand in complete and utter, amazing agreement.
SG Gurria: The comment by the Prime Minister is one of the greatest challenges facing the OECD and one of the greatest challenges facing practically every country in the world today. With the global economic crisis, with low growth or negative growth, with a drop in revenues and the need to protect the most vulnerable, with more people unemployed, and more people who cannot contribute to social securities etc., most of the countries in the world now have to dish out more expenses. At the same time, however, they are doing so with less revenue. Result: a greater deficit.
They are adding 11% or 12% of their GDPs every year in the form of deficit, like the United States, like the UK – maybe to a lesser extent – single digits, but high single digits, in most of the countries in Europe, which is something we’ve never seen before. Now; it is easy to get used to these high numbers in a crisis time but the problem is – they are not sustainable. It is very simple – they are simply not sustainable. And we have to get out of this, and the problem is not to take away the stimulus of the economies today or to break some of the economies today – that would be foolish – we’re not yet ready, we’re not yet there. The economies now are driven in many cases. This is not the case with the Israeli economy, however, because the Israeli economy is led by its own strengths. But in most of the OECD countries, we’re still not beyond what I would call the policy-based recovery. That means that the countries are doing better because the economy is being hit on the head with a wad of dollars or Euros or whatever, based on debt.
PM Netanyahu: Stimulus clause.
SG Gurria: Stimulus. Now the problem is when do you go into self-sustained growth? And most of our countries are only starting to have growth numbers and therefore are not yet there. However, markets need to know how it is that we’re going to go back to normal. What is normal? Normal is the speed at which, for example, in Israel you came from 100 to 80 and moving into an even lower number – that is what I would call your normal. You can move down a bit because of a crisis, but then you go back to your normal pattern which is to have a lesser weight of the debt on the economy. Why? Because big debt crowds out the private sector. Because big debt increases interest rates. Because big debt creates a bigger insurance premium against what they call national credit risk etc. etc. Emotionally, we all need to get out of debt or not want to be so much in debt. That applies to countries too.
So this strategy that the Prime Minister is pointing towards is the appropriate strategy, and the execution has to be done carefully and over time, but the signals have to be put out clearly – that the intention is to move in that direction. And this is the challenge for every single country in the world – the OECD countries in particular – but Israel, which is going to be the newest member of the OECD during the year 2010, is not an exception.
PM Netanyahu: Well, thank you. And I have to say that once we become a member of course, we will be totally obedient – you understand that. But we all have to obey the laws of economic gravity – none of us can escape it. And I think the markets are the laws of economic gravity. I think what the Secretary-General is telling us is that we can recognize these constraints and operate according to them or we can try, at our peril, to ignore them. And I think the advantage of becoming a member of the OECD – we are actually doing two things – one, we are recognizing the proper rules of conducting an economy – of conducting economic policy – and secondly, we’ll actually have a certificate to prove it. It is like a university degree.
So, you know, I want to again thank you for this exceptional work. I also want to thank my colleagues and your associates: Stanley Fischer, Eugene Kandel and Yuval Steinitz. I’ve been receiving very impressive reports and this is an indication that I think we have a great economic team. I think we have a world-class economic team. I think we have a world-class economy but we want to make it better. We want to reduce our debt-to-GDP burden. Our goal is in a few years to get it to 60% and our goal is to continue to advance the competitiveness of the Israeli economy and to upgrade the education of our children – all our children – and to get all our citizens – Jews and non-Jews alike – into the market-place with real careers, with real possibilities. So I thank you for all that you’ve been doing and I look forward to doing a lot more with you.
SG Gurria: Thank you very much, Prime Minister. We were reminded over lunch – I’m a Mexican national – and we’ve had our share of problems in Mexico over time – we were reminded of a sign that the officials of Avis Rent-A-Car Company used to hang around their necks a few years ago which said: “We’re No. 2 so we try harder”.
PM Netanyahu: We’re going to try harder until we’re No. 1.
SG Gurria: So try harder! Thank you very much.
PM Netanyahu: Thank you.