Mixed forecast from the Governor


Sausages and the budget are pretty much the same, says Stanley Fischer, Governor of the Bank of Israel: “You do not want to know how they are made.”

And it is the budget that Mr Fischer, 65, cites as one of the biggest challenges currently facing the Israeli economy. Speaking to the JC this week, he said: “Our budget is realistic and could be pretty good for the next couple of years. After that we will have to make changes. Dealing with it over the longer term is a challenge. The government sees the budget deficit coming down to balance by about 2015, but that is not going to happen unless the economy grows much faster than it now appears likely. Those are measures that will demand difficult decisions.”

Israel’s budget deficit was 2.1 per cent of GDP in 2008, but is set to rise to 6 per cent this year.

Mr Fischer was in London for an Israel Opportunity investor conference organised by the Tel Aviv Stock Exchange and the Israeli Embassy in London. The governor, who has been in his post for four years, says the world — the UK in particular — is showing signs that it has passed the worst of its deepest recession since the Second World War. But it will take some time for Israel to reach a turning point.

“There is no question that Israel is still in a recession. I hope we will start coming out of it before next year but these things are very uncertain.

“Israel is so dependent on other country’s economies. We export nearly half of what we produce. If the foreign markets don’t start growing, it is going to be very hard for us to grow at any serious rate.”

Israel’s unemployment, which currently stands at 7.8 per cent, will continue to rise into 2010.

“How we deal with it will be a very political and humanitarian issue.”

Pressed on what he wants to see from Binyamin Netanyahu’s government, he notes: “There are many things that need doing. When he [Netanyahu] was finance minister, there were a lot of reforms going on: privatisation, the financial system reform — the Bachar Committee — and a variety of others. I hope we go back to structural reforms.

“The state owns a very large quantity of land and we should be putting more of that onto the market. We have very slow planning processes and those needs to be accelerated. “There is a concern whether the electricity supply will be sufficient and whether we are investing enough. There is to be major investment in the water sector and there are plans for a railway network.

“I hope these more structured measures get implemented. And there are many aspects of our bureaucracy which are inefficient and need to be dealt with.”

Mr Fischer says the world’s central bankers appear to have helped fight the financial crisis, particularly Federal Reserve Chairman Ben Bernanke. “During this crisis we formed a little unit. Every day we would tell each other what the central banks were doing. It was a period when you had to innovate.”

Zambian-born, American-raised Mr Fischer joined the Bank of Israel in 2005, becoming an Israeli citizen for the purpose. He was previously president of Citigroup International and First Deputy Managing Director of the International Monetary Fund. He holds a PhD in economics from the Massachusetts Institute of Technology, where he was a professor of economics. He has held visiting positions at the Hebrew University, Jerusalem, and at the Hoover Institution at Stanford.

The indicators

Inflation: 0.9 per cent (January-April 2009)

Budget deficit: estimated at 6 per cent in 2009

Unemployment: 7.8 per cent in April 2009

GDP growth: 3.9 per cent in 2008, estimated -1.5 per cent in 2009

GDP per capita: estimated $29,000 in 2008

Exchange rate: NIS 3.95 to the dollar; NIS 6.4 to the pound

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