goals. these pressures notwithstanding, the ministry of finance is adhering to the correct and prudent policy without yielding to demands for unproductive hyperactive steps. b ) continuation of the bank of israel's interest policy, aimed essentially at maintaining price stability. in this respect there has not been, there is not, and there will not be any change in the bank's view of the maintenance of price stability as its major objective. at the same time, the bank will continue to contribute to the government's other economic goals, especially growth and employment, as long as doing so does not adversely impact on the objective of price stability. the bank will also continue to support financial stability. this issue, the bank of israel ’ s objectives, leads me to the bank ’ s role in the economy. the perception of the bank of israel's policy objectives is expressed in the modern approach to central banking, according to which the central bank is an independent institution, with clear division of labor and responsibility between the government, and especially the ministry of finance, on the one hand, and the central bank on the other. the independence of the central bank is vital for the success of the economy. this is because of the irresistible temptation for governments to ask their central banks to print money to finance their activities, rather than imposing taxes on the population. the request to print money can take on different guises, such as a request to cut the interest rate – which initially, under certain circumstances and in the short run may boost growth, but which eventually, after what may be a very short period, leads to inflation. other examples could include a request to finance a particular industry, or to purchase government bonds, or to write off government debts. this danger is particularly acute in democracies, because democratic governments – in all countries and at all times – generally have a short horizon, especially when elections are approaching. hence, despite the fact that printing money ultimately brings inflation, it is not the focus of their concern, despite the destructive impact it has on the economy and the society. in other words, governments in democratic countries have an inflationary tendency. some of us well remember israel ’ s economy thirty years ago, and the crises that resulted from that tendency. price stability should thus be placed in the hands of a professional independent institution that is free of any political consideration and involvement, and that will operate with a longterm perspective. the political systems in advanced countries understood how important this

c ) the increased rate of participation in the labor market is evident in all parts of the country, including outlying areas ( the northern and southern districts ). d ) the rate of employment of israelis is rising in all industries, including the lowtechnology ones ( such as construction, agriculture, hotels and catering, and electricity and water ). e ) the average real wage is rising in all industries, including the low - technology industries. what conclusion do we draw from this? it ’ s very simple : the longer we stick to the path of rapid growth, the more people will be absorbed in the labor market, and the standard of living of all segments of the population will rise. hence the importance of rapid and continuous growth to the economy, society, and the country, as everyone enjoys its benefits. the need to maintain fiscal discipline in order to achieve rapid and continuous growth, the government ’ s strategy – which enables the economy to continue to grow and economic and financial stability to be maintained – must be adhered to. the essence of this strategy is fiscal discipline, alongside the bank of israel ’ s interest rate policy, and the continued process of structural reforms in areas that promote growth and improve the country ’ s social fabric. one such area, possibly the most important, is without doubt education ; hence the vital importance of a comprehensive reform in this field. i turn now to fiscal discipline. in order to escape from the recession that gripped the economy in the early 2000s, the government adopted a fiscal strategy aimed at reducing both the share of its expenditure in gdp, which had reached 52 percent, and also the budget deficit. there were two good reasons for doing so : the need to free resources for the private sector, which is the main source of growth, and the need to reduce the debt burden, which in 2003 had reached 102 percent of gdp and was threatening to undermine economic stability. the situation was so serious that we had to obtain us government guarantees so that we could borrow on the international markets. as a result of that policy, and with the extra advantage of global economic growth, since mid2003 the economy has been growing at an impressive pace of more than 5 percent a year, the debt burden has been reduced to 82 percent of gdp, the government ’ s interest payments on its debt fell by more than nis 10 billion, the government ’ s share of gdp has fallen to below 45 percent, exports are expanding swiftly, the current account of the balance of payments is showing a surplus