US embassy cable - 05TELAVIV6279

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 006279 
 
SIPDIS 
 
E.O. 12958: DECL: 11/03/2015 
TAGS: ECON, ETRD, EFIN, KIPR, IS, ELECTIONS 2006, GOI INTERNAL, ECONOMY AND FINANCE 
SUBJECT: VPM OLMERT PREDICTS HIS OWN POLITICAL FUTURE, AND 
THAT OF THE 2006 GOI BUDGET 
 
REF: TEL AVIV 06247 
 
Classified By: Ambassador Richard H. Jones for reasons 1.4 (b) and (d) 
 
1. (C) Summary: During an October 31 introductory meeting 
Vice Prime Minister Ehud Olmert (who also is acting Minister 
of Finance and Minister of Industry, Trade, and Labor) told 
the Ambassador that the Israeli economy was performing well, 
and that his challenge was to figure out how to spend a 
revenue windfall before the end of the year.  Olmert 
identified solving poverty as priority number one for his 
expected term as Minister of Finance.  Regarding pending IPR 
discussions over the Patent Term Extension (PTE) legislation, 
Olmert was hesitant about becoming involved in negotiations 
because of what he described as a "slap in the face" from the 
U.S. during the Special 301 review.  Olmert concluded the 
meeting by appealing for action on the GOI's request for Gaza 
disengagement assistance for Negev development.  End summary. 
 
 
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Acting Minister of Finance 
-------------------------- 
 
2. (C) Olmert told the Ambassador that it was unlikely that 
his appointment as permanent Minister of Finance would be 
approved by the Knesset the week of October 31, because some 
Likud members who consistently opposed Sharon on 
disengagement are determined to vote against a package of 
ministerial appointments that they claim reward MKs who were 
loyal to PM Sharon during disengagement.  The contentious 
appointments include MK Roni Bar-On to replace Olmert as the 
minister of Industry, Trade, and Labor and MK Ze'ev Boim to 
serve as Immigrant Absorption Minister, a position now held 
by Minister of Justice Tzipi Livni.  Olmert said that he was 
uncertain whether, if the appointments failed to win Knesset 
approval on October 31 (as they did, see reftel), the PM 
would seek separate approval for his nomination in a second 
vote or if he would again put the nominations forward as a 
package.  Ever confident of his own political standing, 
Olmert said that his appointment would easily garner 70 votes 
in the Knesset if brought without the other nominations. 
Olmert also commented that the vote on ministerial 
appointments would be a good indication of the prospects for 
the 2006 budget. (Note: Several hours before the October 31 
vote, lacking a Knesset majority, Sharon decided to delay the 
vote on the nominations by one week. End note.) 
 
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The Budget 
---------- 
 
3. (C) Responding to a question from the Ambassador regarding 
prospects for the 2006 budget, Olmert said that there would 
be no change in the basic framework of the budget for 2006, 
but that he was considering whether a 1% growth in 
expenditures would be sufficiently large during subsequent 
years.  Olmert noted that the 1% cap reflected fiscal 
discipline that Israel chose to impose on itself to help 
control the rising deficit and the ever-present temptation by 
the government to overspend.  While acknowledging a 107% 
debt-to-GDP ratio, Olmert questioned the logic of holding 
spending growth below population growths.  Olmert cited a 
1.7% increase in real population last year, while government 
expenditures rose only 1%, resulting in falling per capita 
government spending.  Olmert also noted that GOI Central 
Bureau of Statistics forecast 5% GDP growth in 2005, and his 
new responsibility was to figure out how to spend the 
unexpected windfall. 
 
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The Poverty Report 
------------------ 
 
4. (C) Olmert reiterated his commitment to acting on the 
poverty report, citing it as priority number one.  When 
questioned by the Ambassador about the decrease in 
unemployment figures, Olmert responded that the numbers do 
not always tell the full story, as many of those who are no 
longer listed as unemployed are employed in part-time jobs. 
Olmert was complimentary of former Finance Minister Netanyahu 
for his reform agenda, but said that he was committed "to 
helping correct the social price that some economic reforms 
created."  He also noted that the positive effects of many 
reforms, such as the port privatization and Bachar capital 
market reforms, would not be felt for several years due to 
long timelines for implementation. 
 
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Trade and Investment 
-------------------- 
 
5. (C) Olmert said his next highest priority is enhancing 
economic growth.  He said that "high tech is the name of the 
game," and described a $5 billion investment that Intel is 
expected to make in Kiryat Gat as the type of partnership for 
growth that the GOI wants to support.  Indeed, the GOI has 
agreed to grant nearly $600 million to encourage Intel to 
build its Fab-28 plant there.  Olmert said that he expected 
more than 2,000 jobs to be generated by the new investment. 
On broader commerce issues, Olmert reiterated his plans to 
remain involved with the business community, saying that "if 
I'm here (MOF) or if I'm there (MOITL), I'll still be helping 
to run (our trade policies)." 
 
--------------------------------------------- - 
Why should I negotiate for a slap in the face? 
--------------------------------------------- - 
 
6. (C) Olmert visibly bristled when the Ambassador broached 
the topic of intellectual property rights (IPR) protection in 
Israel.  Olmert told the Ambassador that it is difficult for 
him to convince other GOI ministers to engage in IPR 
negotiations with the U.S. when "I tried to make a deal and I 
got a slap in the face."  (Comment: This is not the first 
time that Olmert has expressed to USG officials that he has 
taken personally placement of Israel on the Priority Watch 
List during 2005 301 Review. End comment.) 
7. (C) On other bilateral trade issues, Olmert was more 
upbeat, noting positive progress on long-standing standards 
problems.  Olmert reminded the Ambassador that, out of 
respect to USG concerns, Israel has still not joined the EU 
standards organization.  The Ambassador thanked Olmert for 
the positive work that has been done so far, but emphasized 
the need to look towards comprehensive solutions to the 
standards issue.  Regarding government tenders, Olmert said 
that he wanted to be made aware of any complaints or cases 
that were not quickly resolved by working-level officials in 
his ministry.  Olmert claimed that often when U.S. companies 
do not win GOI tenders, it is because they choose to bid via 
European subsidiaries for their own reasons, e.g., to 
minimize tax bills. 
 
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Aid for Negev Development 
------------------------- 
 
8. (C) Olmert concluded the meeting by asking about the 
status of the GOI request for USG assistance for Negev 
development.  The Ambassador noted the GOI decision to 
postpone technical discussions in the aftermath of Hurricane 
Katrina, and said that the next step in the process was for 
the GOI to respond to the USG technical questionnaire.  The 
Ministry of Finance plans to submit answers to the 
questionnaire on November 7.  Olmert underlined that USG 
funding for Negev development is an integral part of the 
disengagement plan, and would not soon be forgotten in Israel. 
 
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JONES