Central bank head joins wave of criticism against ‘inefficient’ stimulus payouts
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Central bank head joins wave of criticism against ‘inefficient’ stimulus payouts

Amit Yaron says government could have taken better, more effective steps to direct money to those who need it most, predicts economy will continue to slide

Governor of the Bank of Israel Amir Yaron attends a press conference on March 31, 2019. (Yonatan Sindel/Flash90)
Governor of the Bank of Israel Amir Yaron attends a press conference on March 31, 2019. (Yonatan Sindel/Flash90)

The country’s top banking official criticized a financial stimulus package proposed by Prime Minister Benjamin Netanyahu, saying Thursday there were better ways than universal handouts to help the country weather the pandemic.

Bank of Israel Governor Amir Yaron joined growing pushback from economists and politicians against the plan, which will deliver one-time payments of hundreds of shekels to all Israelis, regardless of their financial situation, in a bid to inject money into the faltering economy.

“I think there are better ways and more efficient ways to increase demand,” Yaron told Army Radio. “We have a safety net and we do need to increase demand, but I think there are more efficient ways.”

The plan will see couples with one child receive a one-time payment of NIS 2,000 ($583), which rises to NIS 2,500 ($729) for those with two children, and NIS 3,000 ($875) for those with three or more. Single Israelis aged over will receive NIS 750 ($218). It is expected to cost NIS 6 billion ($1.75 billion).

Yaron suggested that instead, the government could temporarily and retroactively raise unemployment benefits for those who are out of work, on furlough, or self-employed to 90 percent of their normal income, as a way to target those who needed the financial aid the most.

People wearing face masks as they shop at the Mahane Yehuda Market in Jerusalem on July 15, 2020. (Yonatan Sindel/Flash90)

Yaron, who said that Bank of Israel officials had been consulted about the plan in its initial stages but only heard of the final result through the media, also said that it did have “positive aspects” in terms of boosting economic activity, but “could have been targeted a tad better.”

“The main thing now is stabilizing the economy,” he said. “There are a few things that are tied to increasing demand and growth, some of them by going straight to the consumer. The question is if in this case it should be a direct [payment]. Or if it’s possible to aim this toward those who need it and will use it immediately.”

He pointed to vouchers given out in some East Asian countries that ensured spending on certain items in certain places.

While Netanyahu said Israel had enough of a “rainy day fund” to cover the payments, Yaron warned that Israel needed to be prepared for the economy to slump even further before the end of the pandemic and should focus on growth later, not now.

He said forecasts showed the deficit would double from its current 6.4 percent of GDP by the end of the year to 13%, even if Israel only imposes partial restrictions at two-thirds the level of the initial lockdown in order to curb the virus.

“If we have another lockdown, it will cost us NIS 40 billion more. I think that when we are done with this we’ll return to growth,” he said.

A man wears a protective face masks in Tel Aviv on July 15, 2020. (Miriam Alster/FLASH90)

Other finance officials have reportedly leveled harsher criticism at the plan, including Treasury director Keren Terner Eyal, who likened the proposal to “throwing suitcases of money that we don’t have into the sea,” according to Channel 13.

A meeting between finance officials on the proposal ahead of its release devolved into a shouting match heard in nearby offices, Channel 12 news reported.

Prime Minister Benjamin Netanyahu wears a face mask to help prevent the spread of the coronavirus as he chairs the weekly cabinet meeting, at the foreign ministry, in Jerusalem, July 5, 2020. (Gali Tibbon/Pool via AP)

Asked about the Finance Ministry’s opposition to the plan, Netanyahu was dismissive at a press conference Wednesday.

Netanyahu said he was also working on “a long-term plan for the safe reopening of the economy, so we can deal with the coronavirus for as long as necessary — six months, a year, even more than a year.”

Politicians also pilloried the proposal, including within Netanyahu’s government.

“Blue and White supports directly transferring money to citizens, but this needs to be done with an emphasis on those whose livelihoods were hurt… we’ll deliberate this later in the government,” the party said in a statement.

Communications Minister Yoaz Hendel of Derech Eretz called for “compensation for those that took a hit. Not widespread compensation. Business owners, self-employed people, the unemployed and vulnerable families need to get money. Working families do not.”

Yoaz Hendel speaks at a conference in Ramat Gan on September 8, 2019. (Flash90)

Welfare Minister Itzik Shmuli, a member of the center-left Labor Party, said the plan neglected 80,000 business owners who needed support and lacked emergency funding for the disabled, children at risk and the elderly.

Netanyahu is facing a groundswell of criticism over his response to the financial crisis as new infections in Israel rise at an alarming pace.

Over 1,800 new infections were recorded between Tuesday night and Wednesday night, the highest-yet 24-hour total since the start of the pandemic. Over 200 people are in intensive care and 376 coronavirus carriers have died, according to Health Ministry figures.

Health Minister Yuli Edelstein said Wednesday that Israel could return to a nationwide lockdown if immediate action isn’t taken to contain the virus, but ministers have sought to avoid such a step in order to keep from furtherbdestroying the economy.

Magen David Adom evacuates a patient at the Sheba Medical Center in Ramat Gan, July 8, 2020. (Flash90)

According to a Channel 13 poll released on Sunday evening, 61 percent of Israelis disapprove of Netanyahu’s overall handling of the pandemic, and 75% are unhappy with how his government has handled the economic fallout of the health crisis. Only 16% said they were satisfied with the government’s economic response.

Over the weekend, thousands of people gathered in Rabin Square in Tel Aviv to protest the government’s handling of the economic crisis and what they say is insufficient aid offered to small business owners and professionals in the hard-hit entertainment and hospitality industries.

As of Wednesday, 853,843 people were out of work, amounting to an unemployment rate of 21%, the Israeli Employment Service said.

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