Fischer rules out heavy gov't intervention

Bank of Israel governor tells Post central bank will continue to cut interest rates as necessary.

Stanley Fischer Good 88 248 (photo credit: Ariel Jerozolimski)
Stanley Fischer Good 88 248
(photo credit: Ariel Jerozolimski)
Israel's central bank will continue to cut interest rates as necessary to support economic growth amid a looming global recession, Bank of Israel Governor Stanley Fischer has told The Jerusalem Post, while rejecting mounting pressure for increased government spending. "There will probably be government intervention in dealing with the credit crisis and the decline in credit supply in the economy," Fischer said. "But we will not be able to do what the United States and other industrialized economies are doing in terms of massive fiscal expansion, and fortunately we don't have to do it. It is not necessary in Israel." Since Israeli financial institutions, in particular the banks, were in better shape than in other countries and the economy was entering this crisis after five years of strong growth, there was no need for higher state spending that would only widen the budget deficit, he said. "As a result of the very strong fiscal discipline in 2003 onwards, the debt-to-GDP ratio came down from over 100 to 80 percent. This is a huge improvement, but this is still not far enough and that explains why we have to be careful in the use of fiscal policy and budgetary spending in dealing with the coming slowdown," Fischer said. "However, we are in a different situation than other countries, where it has become necessary to implement rescue packages. Nonetheless, our government will be watching the situation and look for ways to make sure that credit is moving to the private sector, in particular to export companies," he said. There might be room - but very limited room - for other measures, such as a program to help provide credit to small and medium-sized enterprises and perhaps to exporters, he added. Speaking at the Prime Minister's Conference for Exports and International Cooperation on Wednesday, Likud chairman Binyamin Netanyahu said monetary policy was not enough to deal with the global crisis. "We must minimize unemployment and promote growth. At the moment this is not being done," said Netanyahu. "In particular, in a time of crisis it is important to lower the level of taxes and to invest in infrastructures." The Organization of Economic Cooperation and Development said on Thursday that the world's developed economies were in a recession and were likely to stay there for a while. The Israel Manufacturers Association and other business leaders have lauded Fischer's steps to contain the crisis but much criticism has been directed toward Finance Minister Ronnie Bar-On, who has so far refrained from actively intervening in the capital market or raising government spending. The association put out a number of proposals that it says will not cost the government much, such as the establishment of a fund to assist small and mid-sized businesses. It has also called for massive investment in infrastructures to boost the domestic market and for intervention in the corporate bond market. With regard to the bond market, Fischer dismissed the idea of government coming to the rescue of businesses short of cash. "The fact that a company borrowed during good times in the past doesn't require intervention by the authorities to help it today, when times are bad. We need to realize that not every borrower who borrowed in the years 2005, 2006 or 2007 should be refinanced," he said. "We better not fall into the trap of believing that if somebody is in trouble we have to rush and rescue him. As long as the market is functioning properly, which it is, intervention would be undesirable." The full interview with Fischer will be published on Sunday, in conjunction with the opening of the 2008 UJC General Assembly in the capital.