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(photo credit: Ariel Jerozolimski)
The government will reach its deficit targets for the year despite uncertainty over what the ultimate toll on the economy the conflict in the North will take, a confident Bank of Israel Governor Stanley Fischer told members of the United Jewish Communities Solidarity Mission.
"Our government budget ended last year with a deficit of less than 2 percent and we were on target to have a deficit of between 0 and 1% this year," Fischer told the gathering late Monday evening. "The official target, however, is 2% and we will make that safely, even with the war expenses that we are likely to face."
Fischer gave his assurances that the mechanisms were in place to guarantee the economy would continue to grow despite the security situation.
Just prior to Fischer's address, the central bank raised the key interest rate from being in line with the US rate of 5.25% to 5.5%, which he explained was a way of maintaining the high level of confidence in the economy.
"[We raised the rate] so that people should understand we have no intention of letting the financial situation in Israel get out of hand, or of letting current events have an impact on inflation or on confidence in this economy," he said.
In expounding on the cost of the war on the economy, Fischer stressed that it depended on the length of time it takes to complete.
In the short-term, if it ends in a week or two, the major impact would be in the North, he said, adding that much depended on the political outcome - that there would be a reduction in the threat that is facing Israel.
Nevertheless, in such a short-term scenario, he estimated the financial cost to the country would be somewhere just less than 1% of gross domestic product.
"Not a small amount," he added "but the record shows that these recoveries happen very quickly provided it's short and provided investor confidence hasn't been shaken."
An extended operation, however, naturally would have a more serious effect on the economy but prior arrangements are in place to keep certain parts of the economy focused, Fischer said.
The main danger to the economy, he stressed, would be the loss of tourists, "which would affect output as it did during the Intifada."
For the UJC delegation, which arrived in the country Sunday to explore what their communities can do to help the situation, Fischer had a clear message.
"We will have to spread the word to return investments in the North and here you can help by talking about the benefits of investing there," he said. "Charity is no doubt going to be helpful - the government is going to need to provide systematic aid to the small-to- medium size enterprises, but investment is very important."
"Foreign investors need to know that this economy keeps working despite the violence, that people are aware of the needs and are doing everything they can to keep the economy going," he said.