Fischer’s unheeded warning
In a speech last month at the Bible Lands Museum in the capital, Fischer, who probably had already decided to step down early, predicted that the incoming government “will not have an easy time in the near future.”
Bank of Israel Governor Stanley Fischer following his resignation, January 30, 2013. Photo: Sasson Tiram
Stanley Fischer’s announcement that he would be leaving in the middle of his
second five-year term as governor of the Bank of Israel was not exactly a
surprise. He warned Prime Minister Binyamin Netanyahu and Finance Minister Yuval
Steiniz that he might not finish his second round as governor. And about a year
ago he even eyed the position of chairman at the International Monetary Fund,
before he was disqualified due to his age. Fischer is now 69 years
Fischer’s announcement comes at a particularly inconvenient
The passage of the 2013 state budget, which was delayed while the
nation went into election mode to choose a new government, is now perhaps the
most pressing challenge we face – at least domestically.
After a series
of miscalculations and readjustments, which can be partly blamed on forecasts
made too far in advance as part of the two-year budge regime instituted in July
2009, the Treasury is in turmoil.
Officials in the Treasury were overly
optimistic about both state revenue from taxes and the budget deficit.
a result, we face a 2012 fiscal deficit of close to NIS 40 billion, which is 4.2
percent of GDP. There is real danger of a rerun of the fiscal crisis of 2002 to
Unless steps are taken to rein in the deficit, our credit rating
will downgraded, making it more expensive to service our loans, though judging
from a $2 billion bond float earlier this year made at record low interest
rates, including the first 30-year bond offering in more than a decade, such a
gloomy prognosis is still premature.
Netanyahu’s rationale for delaying
the passage of the budget until after the campaign was that none of the
political parties would be willing to vote in unpopular budget cuts, austerity
measures or tax hikes in an election year. And that reasoning was
But now the prime minister faces a different challenge: The Likud,
humbled in the election, is weaker and more subject to pressure from coalition
It is possible that Yisrael Beytenu’s 11 MKs could break, or
threaten to break, from the Likud, leaving it with just 20 MKs – only one more
than Yair Lapid’s Yesh Atid.
Under the circumstances, it is somewhat
reassuring that Fischer will remain at the helm of the Bank of Israel until
June. By then the 2013-2014 budget will be passed.
Judging by the way
past warnings made by Fischer were practically ignored, however, there is no
guarantee that future warnings will be heeded. In fact, Fischer’s impotence in
the face of a growing budget deficit might have something to do with his
decision to cut short his second term.
As early as last March, when
Netanyahu came under pressure to increase the defense budget in the wake of the
Arab Spring, Fischer went public with warnings against increasing the budget
Speaking at the Israel Democracy Institute’s annual Caesarea
Forum for Economic Policy at the Dead Sea in June, shortly after Netanyahu
decided to raise the 2013 budget deficit limit from 1.5% of GDP to 3%, Fischer
warned that such a move could have “disastrous consequences.”
noted that since the economy was in good shape and unemployment was low, the
budget deficit was “structural, not cyclical.”
In other words, besides
narrow political considerations of popularity, there was absolutely no
justification for allowing the deficit to get out of hand. “The markets don’t
accept political excuses,” Fischer added.
Unfortunately, he was a
Jeremiah figure whose prophecies of impending doom were ignored. Despite
Fischer’s numerous public warnings, which must have followed warnings made in
private, Netanyahu and Steinitz allowed the budget deficit to grow.
speech last month at the Bible Lands Museum in the capital, Fischer, who
probably had already decided to step down early, predicted that the incoming
government “will not have an easy time in the near future.”
We can only
hope that after ignoring Fischer for too long, our next government will take
heed – before it is too late.