of the government, will be able to lead to the success of the israeli economy in the coming years as well. i would like to relate to the parting gift that aharon fogel wanted to offer me ( to change the bank of israel law so that the growth, employment and financial stability targets would have the same level of priority as price stability ). i hope that this gift does not come into being. the members of the monetary committee take the law into account, as well as the way it is worded and the order of priorities among the various goals of the bank of israel. if we change this rule, we will have more inflationary periods and more recessionary periods. there are enough things that need to be fixed in israel, but regarding the bank of israel law, i think that the saying “ if it isn ’ t broken, don ’ t fix it, ” is applicable. people who preceded me spoke about the issue of government efficiency. according to international surveys, the israeli government is not the most effective government when compared internationally. let us look for instance at the housing market. we all want a situation where prices don ’ t increase but the supply of housing does. this can only happen on one side – on the supply side. it is through the supply side that it would be possible to increase the quantity while lowering prices. the government has understood this and has tried to cause this to happen. it has presented various plans, but the desired result has not come to pass. we need to think of ways to streamline government ministries. the problem in the civil service is the political incentives. the ministry of finance and the ministry of defense are apparently efficient ministries, but there are many ministries that are not. public service workers are high - level workers. we do not have the british tradition of “ yes, minister ”. the turnover among directors general is frequent because the political system is not stable. the current minister of finance has had the longest term of office since that of pinchas sapir, and this is the exception. the fiscal rule was formulated in order to reduce the public debt burden. the law states that it is possible to increase the growth rate in government expenditure as long as there is a decrease in the debt - to - gdp ratio. when we reach 60 percent, government expenditure will begin to grow in line with the growth in gdp according to the current formulation of the rule. however, i believe that we must strive for a lower debt than what is set

of my fellow honorees can talk of the friendships and the attachments they have formed among this community of scholars and in this city. and every one of us will attest to the joy and the pride we feel at being recognized by our colleagues of the hebrew university of jerusalem. i have been asked to talk today about the israeli economy. in brief, the economy is doing well. it grew by 5. 2 percent last year, and the data for the most recent quarter show an acceleration of growth. current forecasts are that the economy will grow by about 5 percent this year again. the budget deficit last year was below 2 percent, and it is likely to be below 1 percent this year. our inflation rate is low. the exchange rate of the shekel is remarkably stable despite – or perhaps because of – the fact that the bank of israel has not intervened in the currency markets since 1997, and does not intend to do so except in truly exceptional situations. we have a current account surplus. the unemployment rate is declining, though unfortunately we have not yet seen a decline in the poverty rate. we are about to enter the fourth year of growth that began in the middle of 2003, at the end of the deepest recession in the history of israel. that recession started late in 2000 as a result of four adverse shocks to our economy : the collapse of the high - tech boom and the nasdaq bubble that had enabled so many israeli high - tech startups to flourish ; the global recession that started in 2001 ; the tailing off of the immigration from the former soviet union to israel ; and the second intifada. it was worsened by an inconsistent set of policy responses to the recession. by 2003 the global recession was ending, and in 2004 growth was higher than it had been in twenty years. the high tech sector was recovering. the security situation in israel improved markedly. and the israeli government in 2003 committed itself to a fiscal framework designed to restore confidence in israel's ability to finance itself, to reduce the share of government spending in the economy, and gradually to reduce the tax burden. the government also initiated a program of structural reforms, including privatizations that had been talked about for at least 20 years, and reforms of the benefits system designed to reduce disincentives to work. over the past three years the government has carried out the program to which it committed itself. this, together with a well - defined inflation - targeting approach to monetary policy, has contributed to strengthening the