Gov't might have to intervene in exchange rate, says PM adviser

"The economy will be facing many months of negative growth here and abroad, but we are getting close to the bottom of the crisis."

Ori Yogev 88 248 (photo credit: Ariel Jerozolimski)
Ori Yogev 88 248
(photo credit: Ariel Jerozolimski)
The government might have to intervene in the foreign exchange market should the shekel-dollar exchange rate continue to drop below last year's record levels, said Prime Minister Binyamin Netanyahu's economic adviser on Tuesday. "It would be a macroeconomic disaster if the shekel-dollar exchange rate would fall below NIS 3.50. We will not let the exchange rate drop to the low levels seen last year," said Ori Yogev, chairman of the National Economic Council, at the Calcalist economic conference in Tel Aviv on Tuesday. "A high exchange rate represents a crucial engine of growth for the economy because of its strong impact on exports. The Bank of Israel is doing what must be done to keep the rate at a supportable level, but if this is not enough the government will need to find instruments intervene." The Bank of Israel has indicated that it would consider stronger involvement in the foreign exchange market should the shekel-dollar exchange rate continue to drop sharply. Following the comments by Yogev, the shekel-dollar exchange rate gained 0.6 percent, closing at a representative rate of NIS 3.91 after hitting a five-month low on Monday. Over the past two weeks, the dollar has lost 7% against the shekel as the greenback depreciated against most currencies around the world. "Israeli exports have been hit hard," said Finance Minister Yuval Steinitz at the conference. "In addition, the dollar has been depreciating against the shekel. For the time being the Bank of Israel is dealing with this situation in an original and rational manner." Yogev, who acted as the prime minister's main negotiator in the agreement with the Histadrut Labor Federation and employer organizations in the 2009-2010 budget deal, said that the economic crisis was deepening, adding that the central bank's forecast of a 1.5% contraction of GDP this year seemed "very optimistic". "Looking ahead, the economy will be facing many months of negative growth here and abroad, but we are getting close to the bottom of the crisis," said Fischer. "We are still not at the point where we can learn the lessons from the crisis. Maybe in about one and a half years we will be able to learn the lessons from this crisis and engage in the reorganization in regulatory systems." Commenting on the management of the banks just a day after forcing out Bank Hapoalim chairman Dan Dankner, Fischer said that it was necessary to strengthen risk controls and corporate governance practice as regulators can not always know everything that is happening within an institution. "Only the bank itself has all the information and the knowledge. If a bank can not manage its risks efficiently there will be trouble one day. If a bank does not know how to manage its corporate governance in a way which we the public demand, problems will arise one day," said Fischer. "Therefore, it is necessary to strengthen the board of directors by increasing the number of independent external directors who bring with them experience in credit risk management." Fischer added that there were a lot of banks who took too much risk. "Risk management needs to be a separate function, with the risk manager reporting directly to the CEO rather than through intermediaries," said Fischer. Also speaking at the conference, Prof. Zohar Goshen, chairman of the Israel Securities Authority, called upon the board of directors of companies to take responsibility over salary and remuneration packages while also creating a closer link between incentives and risk management. "Problematic risk management was one of the major factors causing the failure of financial companies around the world," said Goshen. "Information on risk-taking did not always get to the most relevant places - i.e., the directorate - and in other cases was not entirely understood." As part of a working plan, said Goshen, the ISA was examining alternative regulation models for risk management. "The focus is on imposing supreme responsibility on the directorate to appraise risk management policies," said Goshen. "It is necessary for the directorate to understand the risks faced by the company, formulate a clear policy and endorse guidelines and actively ensure its proper implementation."