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
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
Inflation remained in the middle of the 1-3% target
“Thirty years ago we wouldn’t have believed we could get to this
state, but we got to this state,” Fischer told the committee.
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
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
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
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.
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.
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.”
seek arrangements with its neighbors, including the Palestinians.
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.
part of the answers to the hard questions are related to that,” he
Even with a reasonable level of debt, Israel pays among the highest
risk premiums in the world on its debt because of geo-political
“It seems unfair, but that’s the situation,” he
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.
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.
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.”
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
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.
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