The International Monetary Fund gathered for its annual conference in
Washington, DC, last week to discuss the major trends in the world economy. Bank
Hapoalim president and CEO Zion Kenan sat down with The Jerusalem Post in
Washington to talk about the meetings, the global outlook and what it all means
How would you summarize your main impressions from the IMF
meetings this year?
It was really hard to find sources of optimism this
No doubt, the current fiscal crisis in the United States, and the
potential threat of a US default, has been like a very dark cloud affecting the
mood in the meetings.
In addition, the fact that the IMF lowered its
growth forecasts for the global economy has also been a source of
Has there been any noticeable change in the approach toward
As I am sure many readers are aware, this has not
been a very good year for emerging markets, and in particular for Brazil,
Russia, India and China, the BRIC countries. Their growth rates have been
reduced, they have suffered from capital outflows, and their currencies have
typically depreciated vis-à-vis the US dollar. As a matter of fact, weaker
growth prospects for 2014 are the main reason behind the IMF downward revision
of global growth for 2014. Having said that, I still believe in the great
potential of emergingmarket economies from a longer-term perspective of, say,
the next decade.
Is the euro zone on safe grounds now that positive
growth rates are back in the forecasts for next year?
Of course it is good news
to see that after two years of negative growth the euro zone is back to positive
territory. Yet it is hard to be enthusiastic about the quite pale growth rates
as in the forecast. The thing to emphasize here is that unemployment in that
part of the world remains high, at 12 percent, and it is quite hard at this
point in time to depict a return to full employment.
Has the global
crisis that began in 2007-08 reached an end?
I don’t believe so. True, the risks
of an extreme scenario like a Lehman Brothers collapse are now much lower. Yet
the world has not returned to full employment, and it will take considerable
time before we see that happening. One area that is the source of frustration
for many economists and business people is the very slow pace of reform,
especially in the euro zone. Consequently, one cannot rule out the possibility
that sooner or later we might see new crises ahead.
What is your view of
international banking trends these days?
The banking sector is still suffering
from the implications of the 2007-08 crisis. Some banks have been capitalized
and have cleaned their balance sheets. Yet others are still lacking capital and
will need to eliminate toxic assets that are still held in their
Things are especially difficult in the periphery countries in
the euro zone, including Spain and Italy. Banks there remain vulnerable to
further shocks, and there may be a need for further bailouts with budgetary
consequences for the governments at stake.
I believe the banking sector
in the US is in much better shape than those in Europe.
Overall, we will
see lower returns on capital and a strong pressure to cut expenses and increase
efficiency and productivity.Are the leading central banks doing their
job properly these days?
Well, it is clear that without the major monetary
expansion seen in the US and Europe following the start of the global crisis we
would not have seen a rapid recovery to positive growth-rates territory in most
countries by mid-2009. Central bankers have signaled to market participants that
they will do anything needed to ensure financial stability and to avoid major
Yet I believe that the very low policy rates are a source
Negative real interest rates cannot become a permanent
phenomenon. But in the meantime it is difficult to see how exactly will it
happen that there will be a normalization of interest rates. Many of my
conversations with foreign bankers dealt on this issue; namely, the risks
associated with the massive monetary expansion of the recent years.
does the Israeli economy fit into the global picture as seen from the IMF
In a comparative sense, Israel looks attractive for
Specifically, the fact that there has been a fiscal adjustment
and the 2013-14 approved government budget has included tax hikes and other
adjustments to ensure that publicsector debt relative to GDP returns to a
declining trend is a positive fundamental, supporting the outlook for our
In addition, we are back to being a surplus country in our
current account of the balance of payments, and we have seen an additional
decline in the rate of unemployment. All of these led S&P to confirm our
credit rating of A-plus.What about geopolitical risks?
If anything, we
have seen lately a reduction in these risks, especially due to a calmer outlook
in the Syria and Iran front.
Some of the rebound in our Tel Aviv stock
market has been related to this phenomenon.
What specific areas of
Israel’s economy have been at the center of attention for foreign bankers and
We are seeing growing interest in our infrastructures and energy
sectors, especially on the domestic production of natural gas. At the same time,
various foreign observers have emphasized the hi-tech and banking sectors as
having interesting potential for the near future.
Which sectors would you
characterize as weak in Israel’s economy now?
No doubt, the exports sector is
suffering from weaker global conditions and a strong domestic currency. The
worry here is that some exporters might become no longer competitive vis-à-vis
their foreign counterparts.
My view is that our Finance and Industry
ministries should prepare some emergency plans for aid to various export
companies in case that this would be needed.
What has been your message
to foreign investors considering investments in Israel?
I have stressed again
and again the great potential of the Israeli economy in the years to come.
Luckily, we are not suffering from any major macro imbalances as in many of the
leading Western countries. Our policy fundamentals are looking good, and with
the right policies we may reach growth rates above 4% next year. For this to
happen, the government would have to stress further pro-growth and pro-business
policies. But it seems that we are not there yet.
This article was
produced in conjunction with Bank Hapoalim.
Stay on top of the news - get the Jerusalem Post headlines direct to your inbox!