Photo: Avi Peretz
Fischer. 'Dramatic events'
Photo: Avi Peretz

Fischer: Israeli economy in good shape

Bank of Israel governor says housing crisis wasn't caused by interest rate policy, but adds 150,000 protestors cannot be ignored. Of US debt ceiling deal he says, 'They have very few monetary options left'

"Recent developments in Israel took me by surprise. There were no telltale signs of what was about to unfold. Current events on the global market and on the Israeli market are very dramatic," Bank of Israel Governor Stanley Fischer said Monday morning in a special press conference in Jerusalem.


Officially, the press conference was convened to "examine economic developments and the effects of global economy on the Israeli economy".


Fischer said that the fact that 150,000 people took part in last Saturday's protests cannot be ignored; however, Fischer claims that "Israel's economy is in good shape".


On the other hand, the governor estimates that the US economy is drawing to a slowdown or to an even graver situation. He estimates that the US economy is on a very slow growth curve and does not have the proper tools to deal with the current situation.


The press conference marks a change in Fischer approach after having avoided press conferences and interviews to the Israeli press for many months. During this period the Governor only spoke in various events throughout Israel and only gave interviews to the foreign press.


In response to allegations that the interest rate set by the Bank of Israel was one of the main causes for soaring housing costs, Fischer said: "It's true that had we left the interest rate at 4.25% rather than lowering it, we wouldn't have to deal with the current housing predicament.


"Instead, we would be facing unemployment similar to that in the US which is up to 9.1% or in Europe which almost 10%. If we would have such unemployment in Israel, housing wouldn't be an issue as people would not be able to even conseder purchasing a house."


"Additionally, had we not dropped the interest, demand for flats would not have climbed as it did and construction would not have grown. Meaning that with a higher interest rate there would be fewer houses; therefore, the interest cannot be the only cause of the housing shortage. It is responsible for 20% of the price rise and not the 50% that I constantly see in the press.


"The issue here is the slow response to price changes, which is a supply issue. Accessible housing for young couples means that we have to build more, increase supply. I hope that we don’t make the same mistake we made in the past like building too fast or not accounting for terrorist attacks, leading to price drops of 30%."


On the cost of living Fischer commented, "This ties in to various aspects that are being discussed. We have the competition committee that met with the prime minister yesterday and we examined their progress. It's also a problem of the centralization of Israel's economy which bears on prices.


"I would like this committee to examine the cost of living and look into the disparity between prices in Israel and those abroad – that is, into the reason why imports are not affecting prices in Israel. This has a bearing on the quality of life in Israel."


'Want to make a difference? Go to politics'

Relating to the tax issue, Fischer said that "the prime minister will announce today the appointment of a commission on the tax system, according to the press. I believe that they will begin by examining indices of direct tax indirect tax rates. We can see that indirect taxes dropped over the past decade from 100% to 96% - that's 5% more or less. Direct taxes dropped to approximately 74% from 100% - by 26%.


"These changes bring about changes in the distribution of income after taxes in the economy, as we all pay a 16% VAT which is an indirect tax that has hardly dropped. Income taxes are paid mainly by the upper classes and this has dropped. I assume this will be on the top of the commission's agenda and they will submit their recommendations to the government. I think this is an important step".


Fischer added, "The middle class feels that the government is not acting on its behalf. A team to examine the government efficiency has not yet been put together, and I haven't discussed this with the government yet. Quite a while back, I did speak with the government about the need to increase its efficiency as regards the issues I mentioned here today. The only way that that I know how to negotiate these problems is to take the various services the government provides and analyze them one by one to see what has to be done.


"There is no super-plan that we can adopt that would in one fell swoop turn the government into something more efficient and more attuned to the public's needs, so we have to do this one step at a time. We also have to keep in mind that on many accounts, we have an excellent government. I'm referring to the health system with which I do have some experience from health system overseas and in Israel and the system here is far superior – at least for the average citizen.


"The job Of the Finance Ministry is to watch over the public treasury – a job which it is doing commendably and efficiently. Top officials and Minister of Finance Yuval Steinitz are doing a good job protecting the economy. Without such budgetary discipline, we would not have emerged from the recent crises in such good shape as we have. Sometimes you have to give those who are doing their job properly a pat on the shoulder.


"I would like to add that I have enjoyed working with (Finance Ministry Director-General) Haim Shani, I have deep respect for him and I think it's a shame he decided to resign. He did a good job without making a fuss and gained important achievements even in the short period he was in office."


"We cannot afford to be complacent when it comes to the state of Israel's economy. Things are good; the budget is in a good condition. We missed in the past and we can easily do so again," said Fishcer.


"Up to two-three years ago, Ireland stood for all that's good. Not any more – these changes happen overnight. We must upkeep the current framework in which the government is operating. The government will have to make some tough calls but this can be done only after we do the work.


"We have to take a serious stand as regards the economic policy – we have to examine the implications, and this calls for responsibility not only on part of the government but also of the people. We have to face the fact that there is no magic solution. Several of the issues we've discussed have solutions that can be installed relatively fast. The housing issue will take a bit longer – we can’t fix every thing in one day."


Finally, Fischer related to the protest leaders. "The protesters are the backbone of the country. Just like in any other developed country, the middle class is the backbone of the country and it behooves us to acknowledge this. We must acknowledge the fact that these are people who contribute the most to the economy, state, culture and to the success of the economy that they belong to.


"We have to seriously weigh their demands and evaluate the cost thereof and make a responsible decision on the appropriate course of action. I hope they do so as well and make the appropriate analysis. Part of their approach is political and I don’t want to get into that now but I would like to say that they are contributing to the quality of politics in Israel today. However, those who want to sway politics have to do more than just protest – we need them to go into politics. It's hard work and I say this with the utmost respect to politicians.


"People think I'm cynical about this but I'm not. Trying to win people over is a lot harder than sitting here deciding what the next interest rate will be. Working in the Knesset is very demanding and I would like to impress upon the protestors that if none of those who believe staunchly in the future of the country go into politics – it will be their and our loss."


Click here  to read this report in Hebrew



פרסום ראשון: 08.01.11, 11:22
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