PM’s top economic adviser: Lockdown will come when we feel we’re losing control
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Interview'We're weighing risks... Spain was where we are 11 days ago'

PM’s top economic adviser: Lockdown will come when we feel we’re losing control

Avi Simhon explains how Israel’s leadership is deciding on policy; estimates coronavirus crisis could cost economy more than NIS 50 billion but says it will quickly bounce back

Raphael Ahren is the diplomatic correspondent at The Times of Israel.

Avi Simhon, the chairman of National Economic Council, at a conference organized by the Israeli newspaper Makor Rishon in Jerusalem, December 8, 2019. (Yonatan Sindel/Flash90)
Avi Simhon, the chairman of National Economic Council, at a conference organized by the Israeli newspaper Makor Rishon in Jerusalem, December 8, 2019. (Yonatan Sindel/Flash90)

The government will impose a total lockdown when it feels it is losing control over the situation and can no longer contain the spread of the coronavirus, Prime Minister Benjamin Netanyahu’s top economic adviser said, as officials in Jerusalem consider further steps to confront the disease.

“If we feel that the number of people infected in one day is so high that we are losing control, that we’re headed to a situation of thousands of new infected a day, we will hit the brakes and declare a lockdown,” Avi Simhon, the chairman of the National Economic Council in the Prime Minister’s Office, told The Times of Israel.

The situation can deteriorate very rapidly, he warned.

On Tuesday evening, Health Ministry officials said that Israel should expect “thousands of deaths”  from COVID-19, the illness caused by the virus, if citizens do not adhere to the restrictions and guidelines issued by the government.

It’s impossible to predict how quickly such a development could occur in Israel, Simhon said. “And because I don’t know, I think we have to take risks. And we are taking risks: The fact that on Monday we didn’t decide on a lockdown is a risk we’re taking.”

In an in-depth interview, Simhon, 61, estimated that the current crisis could cost the Israeli economy more than NIS 50 billion ($13 billion). Nevertheless, he sounded cautiously optimistic about the future, predicting that once the pandemic is over, business will quickly recover.

A man walks by closed shops and restaurants in Tel Aviv on March 15, 2020. (Miriam Alster/FLASH90)

A member of Netanyahu’s inner circle who has attended most of the discussions on the coronavirus crisis, Simhon — a political appointee — also provided some insights into the prime minister’s decision-making process, with health officials urging him to scale back public life even further while others are concerned about the cost a lockdown would have on the economy.

Professor Simhon, who lectured at Hebrew University’s Department of Agricultural Economics and Management before joining the Prime Minister’s Office, also discussed the crisis’s wider implications for the Israeli economy, including the effects of a weakened shekel and recovery programs for ailing businesses.

The National Economic Council, which he has headed since December 2015, “serves as a coordinating body for the Prime Minister on topics which require comprehensive and methodological economic thinking, assists in decision-making processes and is involved in projects on the Prime Minister’s agenda and that of the government in general,” according to the Prime Minister’s Office.

Here is a transcript of our conversation, which took place on Tuesday evening, slightly edited for length and clarity.

The Times of Israel: The latest instructions from the government, announced on Tuesday afternoon, are quite draconian. We’re asked not to leave the house unless it’s really necessary. Is there another level of even tighter restrictions after that, or is that it?

Avi Simhon: There are other things that could happen, such as switching to an emergency economy and a total lockdown.

What would need to happen for that to take place?

That we feel that this is getting out of hand, that we’re losing control over the number of infected. If we feel that the number of people infected on one day is so high that we are losing control, that we’re headed to a situation of thousands of new infected a day, we will hit the brakes and declare a lockdown.

Prof. Avi Simhon, head of the National Economic Council, addressing the IATI MNC Forum 2016 (Courtesy: Nir Shmul)

It doesn’t look like we’re there yet, are we?

Listen, today it doesn’t look it yet. But let me remind you that Germany was where we are now just two weeks ago. Spain — on March 5 they had 280 infected, and the next day 400. That was less than two weeks ago. Within 11 days they went from the situation that we are in now to having 500 dead. So this can change very very quickly, and then you simply lose control.

How likely do you think it is that a similar development could occur here in Israel?

I don’t know. You are asking me what I think, but I simply don’t know. And because I don’t know, I think we have to take risks. And we are taking risks. The fact that on Monday we didn’t decide on a lockdown is a risk we’re taking.

What happened is that we — a few colleagues from the finance and economy ministries and some epidemiologists — started a series of marathon meetings on Thursday night, which lasted for 10 hours straight, all through Friday and Shabbat. I sat in the office with [religiously] observant people as well. We presented an outline to the prime minister, and he looked at it and asked us to come to him with more information about the possible ramifications. We worked on the outline until literally a few minutes before the prime minister presented it on Monday evening.

Prime Minister Benjamin Netanyahu holds a meeting to decide on measures to contain the coranavirus with participants sitting spaced apart on March 13, 2020. Simhon is second from the right (Screen capture/Channel 12)

I understand that the Health Ministry officials wanted even more draconian measures, and people from the Bank of Israel and the Finance Ministry thought that the steps the prime minister decided on were exaggerated. Is this accurate?

Yes.

Based on what did the prime minister make his decision [that, while “essential services” continue as usual, the public sector will transition to an “emergency footing” and the private sector will be required to reduce the number of employees at workplaces by 70 percent]?

He listens to the arguments of both sides. I think what eventually tips the scales is the question of what risk we’re taking when we do too much, and what risk we’re taking if we do too little.

If we do too much — more than was necessary — it will have economic repercussions, and the Bank of Israel and the Finance Ministry, and I myself, presented economic assessments of what these steps would cost.

On the other hand, if we’re doing too little, we may get to a situation similar to Spain and Italy. We also worry that Spain and Italy could come to a situation where they’ll be yearning for what’s going on today — that’s a possibility and a worry. So what the prime minister is weighing is the price of a mistake in either direction.

Hospital employees wearing protection masks and gear tend patients lying in bed at a temporary emergency structure outside the accident and emergency department, where new arrivals presenting suspect coronavirus symptoms are being tested, at the Brescia hospital, Lombardy, on March 13, 2020. (Miguel MEDINA / AFP)

There has never been anything like this in Israel, and nobody can say with certainty what will happen if we do this or that. No one knows. There are only assessments, and everybody knows that they could be wrong. So the prime minister needs to ask himself what the price will be if he errs in one direction. Based on that he decides.

What do you say about medical experts who argue that you’re exaggerating, that it’s possible to survive this crisis with less drastic measures, and that you’re needlessly causing the nation to panic.

Until recently I thought that there is no group with more experts that is constantly arguing with each other than economists. Today I know that I was wrong. There are more experts in the medical field, and they argue more with each other than economists. Most experts are certain that the danger is very, very high, and that if this escalates, it could lead to thousands of deaths.

It’s possible that they are mistaken. As you said, there are experts who believe the opposite. It’s possible that they are right. I have to consider the matter, and to advise the prime minister, and the prime minister needs to decide what are the odds that this camp is wrong, and what are the odds that the other camp is wrong.

My short answer to your questions is: I tell them that it’s possible that they are correct. And it’s possible that they are mistaken. Because there are people who are just as smart, with just as impressive titles, who argue the opposite.

And by the way, we’ll know very soon. We don’t have to wait for the messiah to find out who was right, because we see different models. We see what the British are doing [they have so far not ordered widespread social isolation], and we see what we are doing. If it turns out that the British did the right thing, and they will end up with fewer casualties and less economic damage than us, then they were right. If it turns out that we will end up with fewer casualties and less economic damage, then we were right.

It won’t take long before we will know who was right. But in the meantime, we have to make decisions in the face of uncertainty.

You said a few days ago that you’d be happy if you knew that the whole corona crisis could cost the Israeli economy NIS 50 billion. Is that still your assessment?

I stand by what I said. If the archangel Gabriel were to descend from Heaven and tell me, “Come, give me 50 billion shekels and the crisis is behind you,” I’d say, “Yalla, go for it.” I fear that it will cost us more, but I don’t know. I live in uncertain conditions. I have serious concerns that it will cost us more than that.

What’s your worst-case scenario?

As you know, misery knows no bounds.

Give me a ballpark figure. Could it go up to NIS 150 billion?

I don’t think so. I am very concerned that it would go higher than NIS 50 billion, but I don’t want to give you numbers.

The damage to the Israeli economy caused by the coronavirus — is this something temporary, or could it permanently change the face of our economy for the worse?

This crisis has one thing that is better than other crises. Just one thing: We know that it will end without destroying our institutions. Because in the end, there will be a vaccine, and once there’s a vaccine this pandemic will disappear entirely and we will be exactly where we started.

This crisis will be very deep and very painful, I fear. But the light at the end of the tunnel is that at the end, the entire world will open up again and return to where it was before the crisis. That’s very important to remember.

Closed shops and restaurants in Tel Aviv, March 15, 2020. (Miriam Alster/FLASH90)

Hotels and restaurants are currently closed. And it’s possible that some people will go bankrupt. But on the day when the epidemic ends, the hotels and the restaurants will still be there, and will only wait for people to come and open them again. And that will happen, because our institutions will not get hurt. The money will stay, our financial institutions won’t collapse and we can continue from where we stopped.

The shekel has weakened a lot recently. Is that good or bad?

I think it’s bad because it has weakened for the wrong reasons. And I expect that the Bank of Israel will stand by the promise of its governor [Amir Yaron], who said that he will not interfere unless there are sharp fluctuations that emanate from speculative rather than real reasons. That’s exactly what has happened, and I expect him to get involved.

How so?

I expect him to sell dollars, of which he has too much.

A weak shekel makes imports more expensive, and that leads to concerns that this could hamper the supply of food and other goods from abroad, no?

No. The exchange rate has no effect on our ability to import foods. It may affect prices but not much.

A man wearing a face mask, worn by many as a protective measure against the new coronavirus COVID-19, wheels a shopping trolley through a supermarket in Berlin on March 17, 2020. (Kay Nietfeld / dpa / AFP)

The prime minister continues to stress that there is enough food in Israel, including for the upcoming Passover holiday. Okay, so we will make a BBQ on Independence Day, on our balconies, and on Shavuot we’ll eat cheesecake. But since we don’t know how long the crisis will continue, how long will the food reserves last?

As long as the crisis lasts. Because the world hasn’t limited the production of foods, there is no reason to do that. The coronavirus is not something that harms harvests. If you told me that there is an epidemic among wheat harvesters, I’d be somewhat worried about the availability of foodstuffs. But since this doesn’t damage crops there is no reason to believe that there will be any problem with food.

The Bank of Israel has $131 billion, one can buy with this food for about 15 years. And we haven’t stopped exporting. Our exports continue.

What about imports? My kids, for example, love Barilla pasta, which is produced in Italy.

It’s possible that they will have to get used to a brand that is not from Italy. But there will be a lot of pasta. They shouldn’t worry.

What recovery steps are you planning for when this is all over? What concrete measures are planned to bring the Israeli economy back to its feet?

When this is over, the Israeli economy will rise to its feet without us. Hotels, restaurants and business owners won’t need us then anymore, just like they didn’t need us before the crisis. What we need to do is worry about people before this is over.

To help employees is relatively easy. We have all the means to do that — all the laws have already been written. The State of Israel is relatively good to employees, with unemployment benefits and so on.

A Rami Levy supermarket in Gush Etzion, August 3, 2010. The company is listed in a UN ‘database’ of 112 companies operating in the West Bank. (Nati Shohat/Flash90)

Yes, whoever was put on leave saw his or her income reduced, but they don’t stay without anything. There is a safety net for employees that’s not bad. [If they lost their jobs] they won’t earn the same amount that they earned before, but they will get something.

We do not have good safety nets for the owners of small businesses. So we did a few things: First of all, we will give the really small ones as first aid — really just a Band-aid — a payment of NIS 5,000-6,000. Other business owners will get loans with state guarantees, and very good credit rates.

But it’s not enough. We need to take additional steps. We need to sit and think about it. I can’t tell you today everything that we’ll do, but it’s certainly something we’ll have to deal with.

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