david klein : a “ package deal ”? - the policy changes needed for 2002 and thereafter prepared by mr david klein, governor of the bank of israel, as background to a meeting with “ haaretz ” economic journalists, tel aviv, 20 november 2001. * * * clarification of the term the term “ package deal ” was the name given in the past to a plan of action agreed between the government and non - government entities - the employers ’ and employees organizations - to achieve certain objectives. the objectives were usually to lower inflation and reduce the deficit in the balance of payments. today we are facing a different situation : the economy is in recession, there is high unemployment, and there is no significant improvement in sight. in other words, it is clear that the current policy needs to be revised. is a package deal necessary for this, or does the government have the required tools at its disposal to act alone? it is best to answer this question after identifying the policy changes needed to boost growth and raise employment without undermining stability and without increasing the balance of payments deficit. what characterizes the current policy? policy is reflected by laws, government decisions, and agreements, some old ones, and some new. what set of laws, decisions, and agreements is relevant to today ’ s objective? there are two anchors to macroeconomic policy : 1. fiscal policy, aimed at reducing the government ’ s size and debt. the implementation of the appropriate policy in this sphere will enable the tax burden and interest rates, mainly the mediumand long - term rates, to be reduced. both of these factors are vital to growth. we know that the budget for 2002 is not positioned on the path needed to attain these goals : – the deficit will be greater than planned because the estimate of revenues is based on an unrealistic growth assumption. moreover this will be the second year in succession with a deviation in the deficit, which undermines confidence in the government ’ s commitment to return to the downward deficit and debt path from 2003. – by far the greatest part of additional government expenses is directed to current expenses, and only a small part ( less than one tenth ) to financing investments. what is needed, therefore, to attain the objective, is : – to adjust the budget for 2002 to ensure that the deficit set by the government is adhered to ; – to alter the composition of government expenses so that the addition directed to investments increases. to do this, another subject must be addressed : private

the banks would have both a direct adverse impact on customers and an indirect effect that would result from its negative impact on economic growth. 4. the importance of the reform in bank fees i am in favor of this important reform, because it is likely to increase competition in the banking industry, to the benefit of its customers. the reform was the outcome of the intense efforts by the knesset, mainly by member of knesset ( mk ) moshe kahlon, mk gilad ardan, the entire economic affairs committee, and the supervisor of banks. here i would like to compliment the staff of the banking supervision department on the efforts they invested in this area, which resulted in a necessary and wellplanned reform. i would also like to mention the ministry of finance, the director - general of the anti - trust authority, expert advisers and consumer organizations, all of whom cooperated on this issue and supported the reform. the aim of this reform, which will affect us all, is to lower the costs paid by banks ’ customers. there are two ways of achieving this : one is by imposing wide - ranging supervision on bank fees, and the other is by increasing competition in the banking system, and lowering prices via market forces. the first method gives immediate results, but brings in its wake much damage, which i will describe later. the second approach is the right one, which will yield long - term gains to consumers and to the economy as a whole. the reform has increased the level of transparency with regard to fees, and transparency is essential to the development of competition. thus, the reform reduced the oversized list of bank fees, gave them uniform names, and created the current situation in which, for the first time, customers know the prices they are asked to pay for banking services. as a result of these changes, consumers can compare prices and make informed decisions – just as we all do when we go shopping. this has revolutionized the pricing of banking services, and customers can see what they would be charged for various services in each of the banks, and they can then make rational decisions. to help customers, the bank shows on its website the fee tariffs of the banks, tables and calculators enabling customers to compare the costs of managing their current accounts, and other detailed relevant information. all these have created a new situation in israel : for the first time customers are well aware of the full implications of the bank fees and have become more actively involved in this issue. the reform also abolished fees