Finance Minister Yuval Steinitz at press conference
Photo: Gil Yohanan

OECD warns of real estate bubble in Israel

Finance minister, Bank of Israel governor hold press conference on international organization's economic survey of Israel, which states that low interest rates during global crisis drove property prices up

Finance Minister Yuval Steinitz and Bank of Israel Governor Stanley Fischer held a press conference Monday morning on the OECD economic survey of Israel.


"We are proud to receive today a comprehensive OECD economic survey of Israel on the manner in which Israel had been dealing with the financial crisis until today and recommendations on future economic policies," said Steinitz.


"This survey is very important to Israel and I assume we will be adopting many of its recommendations. Although we do not perceive it as the gospel truth, we do concur with most of it."


Steinitz added, "The survey praises the manner in which Israel dealt with the global crisis and its fiscal and monetary policies during the crisis, for which we are grateful and proud. The survey in particular notes the struggle waged in Israel for raising taxes on the gas and oil reservoirs.

הענקת הדו"ח (צילום: גיל יוחנן)

Report handed to Steinitz and Fischer (Photo: Gil Yohanan) 


He stressed that "the survey warns against opening up the budget in 2012. I plan to send a copy to Defense Minister Ehud Barak, and I'm sure he'll find it interesting."


Governor Fischer said, "The survey is interesting and different as it was authored by the organization's member countries. Representatives from the organization visited Israel and spoke to people and were able to produce a report that is pertinent to most of our economic policy.


"The survey is first-class and comprehensive and puts forth numerous recommendations on the fiscal side and I agree with every word. They recommend dropping the debt-to-GDP ratio and were satisfied with the government's spending plan.


"The survey also covers education, social policies, the Concentration Committee, the Israel Electric Corporation, public transportation and environment," said Fischer.


"It also puts forth professional recommendations on these topics which we will examine and decide whether to adopt, and includes an interesting review of the housing market."


Peter Jarrett, the OECD representative at the conference, said: "We expect a 2.9% growth rate in Israel for 2012 as we published in the past, and any other estimate is incorrect.


"We reviewed Israel's social policies concerning the health system and we also knew that there would be a discussion on Israel's natural resources, gas in particular. We naturally examined Israel's fiscal policy as well."


The OECD recently published several reports concerning Israel, including a report stating that Israel's social inequality was among the highest of OECD members and a report that slashed Israel's growth forecast for the upcoming year.


Gaps between shekel, major currencies

Aside from accolades and praises, the survey also included several less encouraging recommendations and warnings. The survey indicates a possibility that Israel would not be able to make a "soft landing" in the housing market and might have to put forth additional macro-stabilizing measures (i.e. restrictions on banks and borrowers in the mortgage market introduced by the Bank of Israel in the past two years).


In the section on the Bank of Israel monetary policy, the survey states that the low interest rates conducted by central bank during the global crisis drove property prices up. The rises and a relatively rapid growth rate justified the bank's early interest hike in September 2009; however, says the survey, these hikes led to interest rate gaps between the shekel and major currencies and added to the valuation of the shekel.


Insofar as the loaded topic of the preferable structure for capital market regulation which has been stoking an ongoing dispute between the Ministry of Finance and the central bank, the survey's authors stated that the Capital Market, Insurance and Savings Division should be separated from the Ministry of Finance to ensure its unbiased operation.


On the other hand, the report does not align itself with Bank of Israel's demand to take the division under its jurisdiction, noting that it was just "one possibility".


Global debates on the structure of financial regulation failed to yield sweeping agreement say the survey's authors, and financial regulation demands tight coordination among various regulatory bodies and extensive assessment of Israel's large business groups.


As for Israel's energy market, the report says, "Knowing the volume of current reserves and the likelihood of future discoveries elicits the demand for a transparent plan for future use of the moneys.


"The earnings should not be channeled to the government's general expenditures nor should they be earmarked for any extraordinary purpose or fiscal clause; the best way to ensure future generations enjoy the proceeds is to create a government capital fund which is independently managed."


The authors do not believe that Israel can become a resource-intensive market with an influence on global energy prices, despite its gas discoveries. Furthermore, claims the survey, Israel cannot lean on external energy sources and the IEC is the main, and nearly sole, energy producer in the country.


In a future perspective, the authors explain that private electricity producers will become an alternative for the IEC but as long as the IEC has a grip on the supply chain, the market structure will remain warped.


Click here to read this report in Hebrew



פרסום ראשון: 12.12.11, 13:47
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