this means that we cannot pause, and certainly not change direction, in our attempt to maintain a low deficit. raising the deficit is not an option, especially because our public spending level is already one of the highest, if not the highest, in the world. our estimate is that in the current year, 2001, our ratio of public spending to gdp amounts to 54 %, compared to an average of 42 % in 20 of the oecd countries, where all of the individual countries ratio are lower than ours. so what can the government do, given the current slowdown, to help the economy get out of the recession? the only viable option is to change the composition of spending so that growth - enhancing expenditures will get priority. government investment in infrastructure, for example, ought to get precedence over government programs to support those who are not working. this does not mean that these programs should be scrapped altogether. but it does mean that they should be refocused. the question should not be how the state can help those who are not working to maintain a modest standard of living, but rather how the state can help them join the labor force. another example, often quoted, relates to the efficiency of our public education programs. international comparisons indicate that, in some instances, we get less for our money, compared with other countries. furthermore, we still grapple with the question whether, and to what extent, there is room for private sharing of educational expenses - not necessarily to save public money but, for example, to focus more on education in development towns. these are only some aspects of fiscal discipline or, as it is sometimes called, fiscal consolidation. they serve to illustrate why it seems, sometimes, easier to bypass the need to be more efficient, and just increase overall government spending and the deficit. * * * a good reason to resist the temptation to give up fiscal discipline is its implications for financial markets : - the first, and most immediate, effect of increased deficit is an increase in the interest rate on government instruments to finance the deficit. this has already started to take place in the last few months. the outcome holds not only for the increase in public debt, but also for that part of the debt that needs recycling every year. interest payments take already some 15 % of the government current resources, and are larger than the education budget and very much larger than government investments. - the increased interest on government instruments reverberates to private ones. this is the second effect. we

the footsteps of the us central bank that reduced interest rates in 2001, he should also quote the fed ’ s emphasis that, given the conditions in the u. s economy, these interest - rate reductions are consistent with price stability ; - and if somebody says that price stability is important and so are growth and employment, he should also explain that if we have more than one target we should employ more than one instrument, and we should not expect to attain all targets using one instrument. partial statements may convey the message that an interest rate reduction is an end to itself, regardless of the consequences, thus increasing skepticism regarding the intention of government policy. but clear statements are not enough. the government should strengthen the ability of the bank of israel to maintain price stability and go on with the reform required to change the structure of the domestic financial markets. the main elements of the reform are well known : - removing the obstacles preventing the creation of a non - bank money market, that will include short - term bills ( makam ), commercial papers, certificates of deposit, repos and various derivatives ; - enhancing the competitive structure of long - term institutional investment, by gradually abolishing the issuance of non - tradable government bonds to pension funds, and reduce concentration in this industry ; - and abolish the remaining controls on foreign currency transactions, including the archaic exchange rate band, thus reaching full convertibility of the shekel. * * * the mission to lead the economy out of the recession is indeed awesome. nevertheless, we should not loose sight of our ultimate destination : durable growth, based on a competitive market, integrated with the world economy and operating based on the same ground rules. such an economy should be also better equipped to deal with poverty reduction and other sensitive social issues.