situation. in this context, we must understand that the success of the economy and its ability to stand up to the negative impact of the hostilities is a result of structural changes over the past 15 years, and of the macroeconomic policies that the government and the bank of israel pursued before, during and after the fighting. now i would like to address solving the problem of poverty in the short term, and in order to build the correct plan for treating the problem of poverty in the short term, it is important to understand poverty and, if needs be, to deal with it at the level of the individual. 1. incentives for joining the labor force first of all, it is important to build tools designed to provide incentives to join the labor force. we know that poverty among families with no breadwinner reached about 78 percent in 2005. in contrast, poverty among families with one wage earner fell to 35 percent and among families with two or more breadwinners, to only 4 percent. i am delighted that the topic of earned income tax credit - which the research department at the bank of israel has worked on for a long time - is gaining momentum. this is an approach that will increase the disposable income for poor wage earners and will also provide an incentive to join the labor market. but as still more than one third of all families with one wage earner are poor, it is important that these incentives are accompanied by the removal of obstacles to entering the labor market so that more and more families will have two or more wage earners. in this context, we are talking about removing obstacles for women. 2. dealing with those who cannot work at the same time, it is important to improve the testing of earning capability and to deal with this individually, through allowances, for those who cannot work. 3. dealing with the elderly who have no source of income another matter concerns the elderly ; poverty among this sector of the population is almost 25 percent. here i note that this subject is dealt with through increasing allowances to the elderly who have no sources of income, as is the case in the budget for 2005 and 2006. 4. the arab and ultra - orthodox sectors this last matter concerns the two sectors of the population that have the highest concentrations of poor in israel. among the arab population, the level of poverty was higher than 55 percent last year, and among the ultra - orthodox it was 63 percent. the reasons for this are, for the arab population, connected to

the central bank and the public in general, and the financial markets in particular, and constitutes an important mechanism of control over the central bank, its management and its policies. it enables the central bank to stay attuned to public criticism, and it enables the public to better understand the functions, policy, decisions and achievements of the central bank. the two subjects i have spoken about so far, central bank independence and the requirement for transparency and accountability incumbent on the central bank lead me to my main subject this evening. 3. the new law for the bank of israel the current bank of israel law dates back to 1954, and is not appropriate either to the current reality of israel ’ s modern economy, or to the global economy. although amendments have been introduced into the law that grant the bank of israel a greater measure of independence, in particular the “ no printing law ”, the bank ’ s de jure independence is more restricted than its de facto independence. it is therefore important to bridge the gap by passing a new law that will provide a proper legal basis for the reality that has been created. the new law will clearly define the independence of the bank, its goals, and the mechanisms for decision making, and should impose on the bank a comprehensive framework of transparency and accountability. the new law should thus contain the correct mixture of independence, transparency and control mechanisms for the bank of israel, according to the generally accepted standards in the advanced economies. in my first few months as governor of the bank we cooperated with the ministry of finance, the prime minister ’ s office and the ministry of justice in producing a bill. we made good progress, but decided to shelve the matter until a new bank of israel wage agreement was reached, and that took longer than we had anticipated. we are now reverting to this issue, and i hope that we will soon have a final version. a. independence the new law will give the bank of israel instrumental independence, i. e., independence in making the decisions on the interest rate as needed to perform its functions and reach its goals. and as i stated above, this independence must also be reflected in the management of the bank. b. defining the targets the new law should clearly define the bank of israel ’ s targets, along the lines of the targets of other modern central banks. the modern approach, and that adopted in the major central banks such as the bank of england and the ecb, generally define three targets, and determines their