“If there’s no partner, it means you’re not willing to find them” warns Bank of Israel governor

Stanley Fischer, outgoing governor of Bank of Israel

Fischer: Improve schools, rid poverty, make peace

In final Knesset Finance Committee meeting before stepping down, Bank of Israel governor highlights challenges facing Israel.

By Niv Elis, JPost
June 06, 2013

In his final meeting with the Knesset Finance Committee before stepping down later this month, Bank of Israel Gov. Stanley Fischer on Monday highlighted the need for improved education, lowering poverty rates and seeking peace with the Palestinians, among six other challenges Israel faces going forward.

During his tenure as governor, Fischer said, the local economy had made strides, bringing its debt-to-GDP ratio down from 93.9 percent in 2005 to 73.1% last year, even as other economies racked up debt. It brought unemployment down to among the lowest levels in the Western world and racked up a high level of reserves. Average economic growth was robust at 4.3%, or 2.5% per capita, especially in comparison with other countries weathering a recession.

Inflation remained in the middle of the 1-3% target range.

“Thirty years ago we wouldn’t have believed we could get to this state, but we got to this state,” Fischer told the committee.

Prime Minister Binyamin Netanyahu praised Fischer’s achievements in the position, and made no bones about partaking in the credit.

“Using basic facts, Fischer gave an important response to those who criticized the economic accomplishments of the previous government,” Netanyahu said at a faction meeting later in the day. “We have two objectives: to continue the high growth and maintain low unemployment. I am convinced we will succeed in doing so while lowering the cost of living.”

Yet despite Israel’s economic achievements, Fischer said that Israel faces nine specific challenges going forward: reducing poverty, improving education, easing red tape on businesses, reducing market concentration, increasing productivity, reducing housing prices, adding competition for banks, reducing defense spending and seeking peace with the Palestinians.

Compared to 2005, Fischer said, “there’s not a big difference in the poverty line,” and Israel’s inequality remains among the highest in the developed world.

A major part of Israel’s poverty problem lies in the haredi and Arab populations, which combined make up almost one-third of the population. If those groups were excluded, the poverty rate would drop from 21% to about 10%, below the OECD average. Only 40% of working-age haredi men and 20% of Arab women are employed.

“What’s clear to everyone is that in Israel, the poverty level in these two population groups is very high,” said Fischer, adding that education was a key factor to including them in the labor force. While those groups had below-average education levels, cultural barriers to working and discrimination played a role in leaving them out of the labor market.

The need for an educated population, however, spreads beyond the confines of Israel’s marginalized communities.

Israel, he said, scored lower than average in all categories on the OECD’s Program for International Student Assessment tests which evaluates 15- year-old students’ scholastic performance in mathematics, science and reading In terms of bureaucracy, Fischer said that Israel dropped from 26th to 38th in the World Bank’s “Doing Business” survey, a situation he termed “dangerous.”

“We’re dropping not because the situation here is deteriorating, but because in other nations they’re advancing quickly,” he said.

Finally, Fischer turned to the topic of defense and peace.

Though the percentage of GDP spent on defense was the lowest in 50 years, having come down from nearly 30% in the early 1970s to just 6%, it was still the greatest drag on the budget each year.

“The defense budget is a burden on the budget and the economy and our quality of life,” he said. If Israel could direct just a few percentage points of its GDP to other causes, he said, quality of life would improve tremendously.

“It’s clear that this economy and this public and the people in Israel live in a very, very insecure region, in a neighborhood with a lot of uncertainty,” he said, but “spending more money on defense isn’t the only solution.”

Israel could seek arrangements with its neighbors, including the Palestinians.

“If there’s no partner, it means you’re not willing to find them,” Fischer said. “We need to work more actively, that is more proactively, to bring to an end the conflict that exists in this region.”

Working toward a credible peace goal would improve Israel’s economic standing in the long run.

“No small part of the answers to the hard questions are related to that,” he said.

Even with a reasonable level of debt, Israel pays among the highest risk premiums in the world on its debt because of geo-political instability.

“It seems unfair, but that’s the situation,” he said.

Fischer also praised the committee’s decisions on limiting pyramid companies to two levels, though warned it against “doing experiments” with the financial system when it came to separating out financial institutions from those in the “real” economy.

The committee’s members heaped praise on Fischer, though several had their critiques as well.

Opposition leader Shelly Yacimovich said that the central bank should deal more seriously with inequality, not just growth and inflation. But in the spirit of salutations, she offered more positive words as well.

“Of all the capitalists, you’re my favorite,” she said with a smile.

Labor MK Merav Michaeli pointedly said, “I join in the praise [of you], but as a someone new here, it’s hard to hear about 10 wonderful years while in parallel, there was such a dramatic increase in poverty and also the daily difficulties of those who haven’t descended beneath the poverty line.

“I am worried that if the economy continues to prosper so much, more and more Israelis will deteriorate!” she added.

MK Ya’acov Litzman (United Torah Judaism) took Fischer to task over his calls to educate the haredi public and integrate them into the labor force, but conceded that “the fact that you are popular among all the parties is unique.”

MK Reuven Rivlin (Likud Beytenu) said Fischer “stood up to those that tried to bend economics to politics,” while Hatnua MK Elazar Stern begged him not to go.

Looking to the future, MK Gila Gamliel (Likud Beytenu) expressed her desire that Fischer’s deputy, Karnit Flug, who also spoke at the meeting, would succeed Fischer and become the Bank of Israel’s first female governor.