. a large number of financial entities, including those not obligated by law, joined the system and began reporting to it and receiving data from it. we also set out the separation of two credit card companies, while ensuring that the parameters of the separation support the goals of the reform. i am also happy to update that the financial stability committee has already met several times and is making progress with the formulation of its tools and work procedures. we presented to the government an extensive and clear analysis on the need to carry out fiscal adjustments. in parallel, we presented a plan to improve the standard of living and productivity in the economy — with an emphasis on operative policy proposals. we are not blind to the housing issue, and its impact on the young generation. therefore, i asked the research department to begin formulating operative recommendations in the housing area, in order to help the new government identify the order of priorities and to act to remove obstacles that weigh on increasing the supply of homes. in a joint initiative with the imf, we are developing a new macroeconomic model, which takes into account two sectors that to date have not been included in the common models — the housing market and the financial system. recall that these two were among the main factors in the 2008 crisis. the model will serve us in macro assessments but will also contribute to the work of the financial stability committee. in another joint initiative with the imf, we are working on an international conference on cyber risk in the financial and banking system, with the understanding that looking forward, this is one of the main risks to financial stability. given the changes in the global economy, and with eyes to the future, i initiated a strategic process to define the bank ’ s goals for the coming years. the entire management has been enlisted in this process, which is being conducted by the director general of the bank, hezi kalo. it is not straightforward to carry out such a process in the midst of the ongoing work that is always very intensive, but it was clear to me that we must look beyond the immediate issues. therefore, we added a slogan to the process — “ working today, thinking about tomorrow ”. i asked the members of management to think outside the box, and to try to identify the important challenges that the bank of israel and the israeli economy will deal with in the coming years. to that end, we set up several teams, with the participation of tens of staff and managers, in all the relevant areas : the first

economy growing at a decent pace and with high budget revenues, we hear calls – populist calls – for increasing government expenditure for one need or another. and there are always needs. and they are mostly justified. but these calls ignore the macroeconomic situation which is so important for sustainable growth and for dealing with problems of society, not just today but tomorrow too, not just in the short term but in the long term too. and what exactly is the budgetary policy that will support sustainable and strong growth? the answer is simple : it is a policy that continues the government's strategy of the past three years. only this week, the prime minister made a decision in this field ; that the budget deficit target for 2007 will be 2 percent of gdp. and this is in line with the government's basic policy guidelines, which, inter alia, set the deficit target for 2009 at 1 percent. and it is important to note that this target is actually a ceiling. but there's another target, no less important ; that government expenditure will not grow by more than 1. 7 percent, in real terms, each year up to 2010. why are these decisions so important? firstly, regarding the expenditure ceiling ; this allows an increase in government spending, which should contribute to the various needs of the economy, particularly the problem of poverty. we heard during yesterday's morning session many recommendations to deal with poverty. it is important that poverty in israel is addressed. it is important that we help the weaker members of society by giving those that can work the incentive to do so, especially through negative income tax, and that we help the needy who cannot work ( the old, the disabled ) directly through welfare payments. it is also important that we help the development of human capital, in the long term, through education. but this should still be within the macroeconomic framework of achieving sustainable growth. this combination – a policy for sustainable growth and a policy of correct treatment of society's problems – contributes to creating the necessary balance between economy and society. it is important that we understand, and that we declare, that the best way to deal with poverty in the long run is through economic growth. this is because in this way we create more places of work and more opportunities to earn a higher wage and, in addition, it will provide the government with the necessary resources for its role in combating poverty. secondly, the new budget deficit ceiling – which is lower than before – helps to cope