US embassy cable - 05TELAVIV1019

C O N F I D E N T I A L TEL AVIV 001019 
 
SIPDIS 
 
E.O. 12958: DECL: 02/17/2015 
TAGS: ECON, PREL, IS, ECONOMY AND FINANCE, GAZA DISENGAGEMENT, U.S.-ISRAEL RELATIONS 
SUBJECT: DEPUTY BUDGET DIRECTOR: GOI TO FORMULATE U.S. 
ASSISTANCE REQUEST SOON; EXTRA DISENGAGEMENT EXPENSES 
PUSHED OUT TO 2006 
 
Classified By: DCM Gene A. Cretz for Reasons 1.4 (b,d) 
 
1.  (C) Summary.  Deputy Budget Director Yossi Gordon 
informed Deputy Economic Counselor February 17 that the 
Ministry of Finance was going to develop a request for U.S. 
assistance to help pay for the military aspects of 
disengagement over the next two weeks to one month.  He also 
said that the GOI would not allow the ever expanding costs of 
disengagement to break the budgetary "framework" for 2005, 
defined as a budget deficit limited to 3.4% of GDP and real 
expenditure growth limited to 2%.  The GOI would do this by 
pushing disengagement-related expenses in excess of the 
"framework" to 2006.  End Summary. 
 
2.  (C) Gordon spoke in the wake of the February 16 Knesset 
vote approving the disengagement compensation and evacuation 
legislation.  He said the compensation provisions in the law 
would cost about NIS 4 billion, significantly more than 
originally budgeted by the GOI.  He noted that the 
military-related costs of disengagement were also going up 
with time and the GOI was now estimating these would cost 
approximately NIS 2 billion.  Nonetheless, Gordon stressed 
disengagement-related expenditures would have "no impact" on 
the 2005 budgetary framework.  Specifically, the GOI would 
stick to its limit of NIS 2.2 billion in 
disengagement-related expenditures in the 2005 budget.  This 
meant that "the 2005 deficit will not exceed 3.4% of GDP." 
Gordon said that the GOI would achieve this goal by pushing 
2005 budget-breaking costs out to FY 2006: "Disengagement 
will take place towards the end of the year, which means it 
will not be difficult to push expenditures into 2006." 
 
3.  (C) When pressed for details on other budget-busting 
aspects of recent 2005 budget developments, such as the MoF's 
failure to repeal a number of special tax exemptions, 
Gordon said he was not in a position to comment. "We've been 
consumed with disengagement," he said, "and only now am I 
turning back to the budget." 
 
--------------------------------------------- ------ 
GOI To Begin Working on Request for U.S. Assistance 
within 2 Weeks of Cabinet Vote on Disengagement 
--------------------------------------------- ------ 
 
4.  (C) Gordon said a group headed by MoF DG Bachar would 
begin the process of formulating a request for U.S. 
assistance within two weeks of the cabinet vote on 
disengagement, which Gordon expected would take place 
February 20 or 27.  The request would focus primarily on 
support for military-related costs of disengagement.  He 
noted that the formulation of such a request did not mean 
that the GOI would definitely end up submitting it; that 
decision would be taken at a later date. 
 
------- 
Comment 
------- 
 
5.  (C) Although Gordon's comments show the GOI is committed 
to meeting its amended 2005 budgetary targets, he did not 
inspire great confidence in his government's ability to keep 
its deficit on a downward path in 2006 and beyond.  This 
should be a major topic for the upcoming 2005 JEDG. 
 
********************************************* ******************** 
Visit Embassy Tel Aviv's Classified Website: 
http://www.state.sgov.gov/p/nea/telaviv 
 
You can also access this site through the State Department's 
Classified SIPRNET website. 
********************************************* ******************** 
KURTZER