VZCZCXYZ0001
RR RUEHWEB

DE RUEHTV #0800/01 0930829
ZNR UUUUU ZZH
R 030829Z APR 09
FM AMEMBASSY TEL AVIV
TO RUEHC/SECSTATE WASHDC 1302
INFO RUEHXK/ARAB ISRAELI COLLECTIVE
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS TEL AVIV 000800 
 
SIPDIS 
 
NEA/IPA FOR GOLDBERGER, SACHAR; EEB/IFD FOR JACOBY; TREASURY FOR 
BALIN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV ELAB IS
SUBJECT: YUVAL STEINITZ NAMED FINANCE MINISTER 
 
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Summary 
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¶1.  Prime Minister Benjamin Netanyahu appointed Dr. Yuval Steinitz 
from the Likud Party to the post of Minister of Finance.  Steinitz 
is a widely-published philosopher and thinker, with the reputation 
of being able to digest and make sense of complex issues.  He is 
reportedly a fiscal conservative who wants to cut both spending and 
taxes.  Steinitz is one of Netanyahu's closest confidants and is 
reportedly also very close to Netanyahu's wife, Sara.  The 
appointment was not a surprise, as Steinitz headed Netanyahu's 
"100-day team," which laid out options for quick government action 
on important issues.  Reaction to the appointment was mixed, with 
some commentators skeptical due to Steinitz's lack of background in 
economic issues and his lack of ministerial experience.  Most of his 
prior experience was in defense and intelligence issues.  In the 
past two Knesset terms he also served as Chairman of the Joint 
Security Committee between the Knesset and the U.S. Congress.  Those 
defending the nomination note that Steinitz's very close 
relationship to Netanyahu will make up for his lack of experience 
and that he will receive expert guidance from the highly-experienced 
and professional Ministry of Finance staff.  Regardless, Prime 
Minister Netanyahu himself will be deeply involved in economic 
affairs, as indicated in his taking the additional title of Minister 
for Economic Strategy. 
 
--------------------------------------------- - 
Philosopher to Military Strategist to Minister 
--------------------------------------------- - 
 
¶2.  Steinitz, 51 years old next week, holds degrees in Philosophy 
from Hebrew University and a Ph.D. in Philosophy from Tel Aviv 
University.  He was a Senior Lecturer in Philosophy at Haifa 
University, and was reportedly considered an outstanding lecturer by 
his students.  Growing up in a left-wing family, he was among the 
founding members of Peace Now in the 1980's, where he got to know 
present Ministry of Finance (MOF) Director General Yarom Ariav - 
also a founding member of the organization.  In 1982, he was injured 
at a Peace Now rally, in the infamous incident in which demonstrator 
Emil Grunzweig was murdered.  After the assassination of Yitzhak 
Rabin, Steinitz appeared to change his political views, publically 
defending Netanyahu, the Likud, and the right-wing camp against 
charges that they were responsible for the assassination.   His 
relationship with Netanyahu began at that time.  When Netanyahu 
resigned from the Knesset after his loss in the 1999 elections to 
Ehud Barak, Steinitz took his seat.  A long-term parliamentarian, he 
is known primarily for his work on security and defense issues. 
Prior to this appointment to one of the three senior cabinet 
positions (along with Defense and Foreign Affairs), Steinitz served 
from 2003-2006 as Chairman of the Foreign Affairs and Defense 
Committee and also chaired the Subcommittee for Intelligence and 
Secret Services for part of that period. 
 
---------------------------- 
Mixed Reviews on Appointment 
---------------------------- 
 
¶3.  Although the appointment had been anticipated, negative 
reactions came quickly.  Former Finance Minister in the Rabin and 
Barak Governments Baiga Shochat and his DG, Avi Ben-Bassat, were 
critical of the appointment in interviews on Israel radio. 
Ben-Bassat criticized Steinitz's lack of experience with economic 
subjects, noting that he never served on any economic or 
finance-related Knesset committees, and did not even have any 
business experience.  Shochat reserved his criticism for Netanyahu, 
saying that the appointment of someone without the relevant 
experience to such a crucial job at a time of economic crisis was 
irresponsible. 
 
¶4.  Economic commentator Sever Plotsker wrote in Yedioth Aharonot on 
March 31 that "Dr. Steinitz is a man of many talents, an 
intellectual, a philosopher, but not an economist.  Handing over the 
Finance Ministry to Steinitz is dangerous and infuriating."  Galia 
Maor, CEO of Bank Leumi, on the other hand, said that "if the new 
Finance Minister listens to the professionals in the MOF, he can 
succeed."  In a Globes interview, Teva Pharmaceuticals Chairman Eli 
Hurvitz noted the importance of a good relationship between the 
Prime Minister (PM) and the Minister of Finance and dismissed 
concerns that Steinitz's lack of economic background would impair 
his ability to do the job.  Hurvitz said that in a recent meeting, 
Steinitz displayed such a mastery of the subject matter that he only 
realized in the middle of the meeting that Steinitz was not an 
economist.  Justice Minister Yacov Ne'eman, who served as the Second 
Finance Minister in the earlier Netanyahu Government, also noted 
that the good relations between Netanyahu and Steinitz increased 
Steinitz's chances to be a successful minister.  In an April 1 
article, Ha'aaretz's Zvi Zacharia called Steinitz's lack of 
experience an "advantage" - noting that he is not "captive" to a 
particular economic world view, and therefore has an open mind. 
 
---------------------------------------- 
Is Netanyahu the Super Finance Minister? 
---------------------------------------- 
 
¶5.  Considered one of the most successful Israeli Finance Ministers 
for his reform of the economy and the his role in pulling it out of 
the 2001-2003 recession, Netanyahu has never hidden his ambition to 
have the job again -- along with the title of Prime Minister.  He 
has stated several times since the elections that he would serve as 
Finance Minister, in addition to Prime Minister.  This elicited 
criticism that the country needs a full-time Finance Minister during 
a time of economic crisis and that the demands of being PM will not 
enable him to devote the necessary time or energy to the Finance 
portfolio. 
 
¶6.  Two senior Likud party members have already served as Finance 
Ministers, Dan Meridor, who was the first Finance Minister when 
Netanyahu was PM in the nineties, and Silvan Shalom, who was FM in 
the first Sharon government, prior to Netanyahu's succeeding him in 
the post.  Netanyahu did not select them for the job, in part, 
reportedly, because he does not have very good relations with them. 
Instead, he chose his close associate and confidant Yuval Steinitz. 
He originally considered giving Steinitz the title of Minister in 
the Finance Ministry, likely due to Steinitz's lack of economic 
background.  According to reports, Steinitz told Netanyahu that this 
title would not give him the authority necessary to function and 
that everyone would bypass him and come directly to Netanyahu to 
deal with major issues.  While Netanyahu did decide to give Steinitz 
the full title, he also gave himself the titles of Minister in 
Charge of Economic Strategy and Head of the Economic Cabinet.   The 
significance of these titles remains to be seen.  Regardless, 
Netanyahu clearly aims to remain a major player on all issues 
related to Israel's economy. 
 
-------------------------- 
Maintain Budget Discipline 
-------------------------- 
 
¶7.  While we do not yet have a full picture of Steinitz's economic 
views, he noted in an April interview with The Marker that it is 
important to maintain a policy of fiscal restraint and stay within 
the budget framework.  He said that "we need to cut defense and 
prevent an increase in public sector wages in order to meet the 
target of reducing the deficit."  Although MOF officials were 
reportedly concerned about Steinitz's hawkish image, Steinitz said 
in a recent interview that there is no choice but to cut the defense 
budget.  A contact close to Steinitz told EconCouns that the new 
Finance Minister is interested in cutting the amount of money spent 
on IDF activities in the West Bank, which could dovetail with the 
emphasis Netanyahu is placing on encouraging Palestinian economic 
development. 
 
---------------------- 
Corporate Bond Bailout 
---------------------- 
 
¶8.  One issue that is likely to require the new Finance Minister's 
quick attention is dealing with the severe problems in the corporate 
bond sector.  The 100-day team, which Steinitz headed, recommended 
providing government guarantees of-80 percent to institutional 
investors to purchase new corporate bonds issued by companies having 
trouble raising money - particularly a problem for Israel's 
"tycoons," who have suffered big losses from real estate investments 
around the world, especially in the U.S. and Eastern Europe. 
Steinitz's view is that the guarantees should be provided only for 
investment in companies that are basically healthy and can recover 
from the crisis with a bit of help.  He apparently does not view it 
as a "tycoon bailout plan."  He also believes that the guarantees 
should primarily assist companies whose main activities are in 
Israel - another condition that would preclude many tycoons from 
qualifying. 
 
¶9.  In the April 1 interview in The Marker, Steinitz also said that 
the Wisconsin Employment Training Plan should be extended to the 
entire country and that the number of foreign workers in Israel 
needs to be reduced significantly.  He favors a negative income tax 
and thinks, as does Netanyahu, that taxes should be gradually 
reduced over the next four years. 
 
--------------- 
Budget Approval 
--------------- 
 
¶10.  The most urgent issue Steinitz will face is approval of the 
2009 budget in the Knesset and presentation of the new Government's 
economic policies, including sharp budget cuts, which total more 
than NIS 20 billion, according to the press.  The 100-day team 
reportedly recommended delaying approval of the budget for 90-120 
days, indicating that the thinking is to submit a combined 2009-2010 
budget.  Approval of a 2009-only budget has to happen by May 15. 
Delaying budget approval by more than 45 days from the formation of 
the government will require an amendment to the Budget Bill. 
 
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First Meeting with MOF Officials 
------------------------------------------- 
 
¶11.  Meeting with Finance Ministry officials on his first day in the 
office, Steinitz said that he felt very lucky to be serving as 
Finance Minister together with a Prime Minister who understands 
economics, loves it, and has extensive experience.  He sees this as 
an advantage and a great asset.  He also praised the Finance 
Ministry officials, who, he said, are known for their 
professionalism and dedication, and even criticized by some for 
their excessive professionalism.  Steinitz said that he is open to 
hearing from all officials in the Ministry of Finance, wants to be a 
loyal partner, and intends to learn, consider, and then make 
decisions.  The new Finance Minister said that during this time of 
global economic upheaval which is also affecting Israel, the people 
of Israel and State of Israel are watching.  It is time to work 
harmoniously with the Prime Minister and his office, as well as with 
the Histadrut, and the Manufacturers Association.  (Note: One of the 
planks of the Likud-Labor coalition agreement calls for the 
establishment of a social-economic forum, made up of the Government, 
the Histadrut Labor Federation, and the Manufacturers Association, 
somewhat akin to the German economic policy management model.) 
 
 
CUNNINGHAM