Professor Stanley Fischer, Governor of the Bank of Israel, gave an address to the Knesset Finance Committee on May 9th, 2007. Some of the highlights of his address included:

Israel’s success
2006 was one of Israel’s most successful years. This was reflected in the high rate of growth, the decline in unemployment, the impressive surplus in the current account, the amount of foreign investment in Israel, and price and financial stability. Fischer noted that all of this success is even more impressive given the fact that Israel was engaged in war.

Problems
Some of the problems that he addressed were the relatively high unemployment rate, the relatively large share of public debt in the GDP, and the high incidence of poverty. Nonetheless, he noted all three of these have improved over the past three years.

The main objective of Israel’s macroeconomic policy, he said, should be the maintenance of a high rate of growth and converting it into a long-term one.

In order for Israel to have continued success, Fischer stressed that the government’s economic strategy needs to continue, and consists of three components:

1. Continue the current fiscal strategy which focuses on the preservation of a low budget deficit, which should lead to a further lowering of the high debt/GDP ratio.
2. The monetary strategy should continue to ensure price stability.
3. Economic reforms should continue, specifically privatization, improved education, better competition and infrastructure investment.

Fischer noted that the current inflation level is very low, even lower than the target. He considered the containing of inflation to be the primary target, with the secondary targets being to contribute to economic activity and financial stability.

He addressed the often asked question, “How can Israel’s economic situation be so good despite all the political problems facing the country?” He suggested several reasons including:

• The global economy is growing at an impressive rate,
• The government has maintained fiscal discipline,
• The Bank of Israel keeps a steady hand on the pulse to carefully watch inflation,
• There is a far stronger and more robust economic framework in Israel than previously existed,
• The business sector, during the war last summer, showed its ability to carry on functioning well and meet its delivery dates.
• Finally, he noted that the OECD is currently deliberating on the enlargement of the organization, and the Bank of Israel has been actively working on a process that should hopefully lead to Israel’s membership in the organization.

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