Bank of Israel Governor Stanley Fischer should be given a second term after managing the economy "almost perfectly" during the global crisis, according to Zvi Lubetzky, chairman of IBI Investment House Ltd.
"One of the main reasons that Israel recovered from the recession so smoothly is because the central bank managed the crisis so well," Lubetzky, 70, whose firm manages over NIS 14 billion, said in his Tel Aviv office late Wednesday. "It could be a potential catastrophe for the economy and to the market if Fischer is not kept here as long as possible. His presence provides adult supervision."
Fischer, a former IMF deputy managing director, was the first central banker to raise interest rates since signs of easing in the global crisis emerged. He used "aggressive but necessary" tactics such as buying billions of dollars to weaken the shekel and protect the country's exporters, said Lubetzky, who in 1971 cofounded IBI.
When asked on Channel 2's Meet the Press program this past week about his interest in continuing to serve as governor, Fischer, whose term ends in May 2010, didn't give a clear response. Prime Minister Binyamin Netanyahu may soon officially ask Fischer to remain in the position, according to media reports.
The Bank of Israel started buying dollars in March 2008, doubling reserves to a record $60b. at the end of last month. The measures may have helped the economy, which bounced back from recession and grew 0.8 percent in the second quarter, according to the Central Bureau of Statistics.
While the country's economy is strong, there is a "high risk" that local stocks, bonds and the shekel may experience a sudden decline if the global economic recovery falters, Lubetzky said. IBI, which says it's the third fastest-growing mutual-fund manager in Israel, has moved out of long-term bonds and has enlarged its foreign-currency portfolio to prepare for such a possibility, he said.
"There is a bad risk in the market now: that if foreign money starts going out, it could have a bad impact on the stock exchange," Lubetzky said. "The market is not cheap right now, and although it's not yet a bubble, it has risen to levels that are not justified by economic growth."
Foreign net investment in Tel Aviv-traded shares rose to $444 million in August compared with net sales of $39m. and $36m. in the previous two months, the central bank said October 13. Most of the investments were in communications, chemicals and pharmaceutical companies.
The benchmark TA-25 Index of stocks has surged 58% since the start of the year. The shekel has gained about 9.7% since May.
"The currency market runs the risk of a sudden, fast change in trend," Lubetzky. "That could push the shekel all the way down to 4.5 per dollar." (Bloomberg)