entries continue to rise gradually ; and the composite state - of - the - economy index for the first few months of the year was retroactively revised upwards last week by the bank of israel. hence, the picture that emerges regarding economic activity in the first few months of the year does not justify changing the bank of israel's forecast of 4 percent growth for 2005. this situation of a growing economy with economic and financial stability did not come about by chance. it is the result of a correct macroeconomic policy, in particular of monetary policy that focuses on stability, and without jeopardizing it, helps growth, combined with fiscal policy that operates within the framework of long - term fiscal discipline alongside structural reforms that support growth. as far as fiscal policy is concerned, i am in favor of the ministry of finance program to reduce taxes ; care must be taken to ensure that during its implementation special attention is paid to the welfare aspects of the program, and that the government debt and its high share in gdp continue along their downward path. i would like to turn now to two important issues facing us, and which the finance committee will also have to deal with : the recommendations of the bachar committee, and the bank of israel law. with regard to the bachar committee, i would like to make it perfectly clear that i support the proposed reform of the capital market along the lines recommended by the committee. the high degree of concentration in the capital market has an adverse effect on economic growth and efficiency. it is very difficult to pursue a policy of economic reforms without dealing with this issue in a thorough and comprehensive manner. the proposals of the bachar committee offer a good solution to the problems of concentration afflicting israel's capital market. most of the credit market is in the hands of the banks, and although nonbank credit has been expanding recently, the rate at which this is happening still leaves the bulk of credit within the banking system. there are certain detailed aspects of the reform that are still being addressed. but the question to be asked is whether after the reform the situation in the capital market will be better than before. if the answer is " yes, " then we must go ahead and implement it. in this case my answer is a definite " yes. " the second vital issue, and to the bank of israel this is the first issue, is the bank of israel law. i would like to state at the outset that despite the fact that the bank has been operating for 50 years

under the same antiquated law, it does a very good job. so why is a new law needed? someone actually advised me that it is not worth my while to push for a new bank of israel law. " why not? " i asked. to which he answered, " because currently you have all the power. you basically make all the decisions alone - on the interest rate and even on which of the various objectives specified in the law you choose to concentrate. " honorable members of knesset, the bank of israel law is not at all about how much power the governor yields, or if it suits him to make decisions alone. the bank of israel law is about constructing a mechanism that will strengthen the central bank and its ability to act for the good of the economy and the state. the existing law is inappropriate for a modern central bank. it is true that for many years the bank of israel has had an ordered, professional decision - making process in which the relevant departments and professional parties are involved, which helped my predecessors to make decisions. nevertheless, under the current law the final authority and responsibility for decisions rests with the governor alone. and that is not the optimal situation. since the bank of israel was established 50 years ago, the attitude towards central banks - both world wide and in israel - has undergone fundamental changes, regarding their objectives, their decision - making processes, the instruments they need to have at their disposal, and their obligations towards the government, parliament and the public. what, then, is required from the new law? first, a clear definition of the objectives of the central bank must be specified. it is important that we adopt the concept accepted throughout the world, and define the achievement of price stability according to a target set by the government - as the major goal. in addition, the bank should also support the orderly activity of the financial system. at the same time it is important to specify that the bank should support other objectives, such as growth and employment, as long as these do not undermine price stability. second, the bank must be given independence to employ the instruments needed to achieve its purposes, according to its professional judgment. this is obvious. third, an ordered decision - making framework should be established, i. e., a monetary committee that will decide on monetary issues, and an administrative council that will decide on or authorize decisions on such issues as the bank's budget and employees'salaries. such systems will on the one hand ensure the bank '