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(photo credit: Ariel Jerozolimski)
Maintaining the prolonged and significant growth of the Israeli economy is critical to Israel's physical well-being and security, Bank of Israel Governor Stanley Fischer has told The Jerusalem Post in a wide-ranging interview.
Speaking as he approaches the third anniversary of his taking over the governorship next month, Fischer acknowledged that Israel was grappling with wide social inequalities, and stressed the imperative to reduce poverty. "But I wouldn't significantly hold back the economy and the growth of the leading sectors in the economy to deal with our large social gaps," he said.
Elaborating, Fischer emphasized that "we need our economy to grow because we face a substantial security challenge: we have to be able to pay the unfortunately high price that it costs us to defend ourselves. We have to grow fast because neighboring economies are also growing fast, and we have to be certain that we can maintain our relative strength."
Consistent economic growth was also critical to reversing the "brain drain" that sees many highly skilled Israelis leaving the country for better opportunities overseas, he said.
Human capital was virtually Israel's only natural resource, Fischer said, and consequently "We've got to reverse the brain drain trend if we are to continue to thrive... That means investing more in the educational system, which will help both reduce poverty and encourage growth."
The governor noted that the Bank of Israel is now estimating growth for 2008 at 3.2 percent, well below 2007's 5.3%, but "a very respectable growth rate given the global growth slowdown." Despite the impact of that slowdown, he said, "If the political system keeps its nerve, if the Bank of Israel keeps its nerve, if our businessmen keep their nerves and consumers do the same, we can grow at a reasonable rate."
If Israel came through 2008 with growth of three to four percent, and continued to manage its economy well, it could then expect to "resume growing at 5%," he said. "And if the investment environment continues to improve, we can grow even more rapidly."
He said the Bank of Israel was determined to do its best, within its policy framework, to keep the economy growing, because if it did not, and if the government did not contribute as necessary, there would be a greater likelihood of economic indicators such as the GDP, and social indicators, turning negative again.
Overall, Fischer stressed how impressively the economy had performed down the years. "Israelis and, with them, the Israeli economy have lived through a lot," he said, citing the Second Lebanon War, the second intifada, the 2001-2003 deep recession and other factors.
The economy may not function at the per capita level of the United States, Germany or France, he said, but it does perform at the level of the less wealthy European countries, "despite a defense budget that is five times larger - relative to GDP - than those of the European economies."
(The interview with Stanley Fischer will be published in full later this week.)