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DAVOS, Switzerland - The Israeli economy can continue to expand even under the new conditions created by the Hamas victory in the Palestinian elections. That is the message of Stanley Fischer, governor of the Bank of Israel, who sees no reason to change the forecast of 4.3 percent growth for Israel in 2006.

In a conversation with Haaretz at the World Economic Forum in Switzerland, Fischer made a point of noting that the Palestinians have an interest in not hurting their own economy: When they attack Israel, it boomerangs.

In a general interview with the international press, Fischer drove home the message that the Israeli economy is strong. In 2005 it achieved 5.2 percent growth, he noted. The illness of Prime Minister Ariel Sharon has not impacted economic stability and it took the stock market less than two weeks to recover the ground it lost when Sharon was incapacitated by a massive stroke.

Naturally, Fischer qualified, the Israeli economy would grow faster if the peace process could advance. But the nation has the capacity to safeguard its security and the stability of its economy even if the peace process is paralyzed, the governor said.

He disagrees with the view, often repeated, that Israel's economic recovery stemmed from the disengagement and the U.S. economic recovery, not economic policy. Obviously there were multiple factors at play, Fischer said, but equally clearly, without the steps the government took in 2003 and steps it continues to take today - the situation could well have deteriorated very seriously. Therefore, whatever happens on other fronts, Israel must not change its economic policies, the governor exhorted.

He also utterly rejected claims coming from the left and center that any surplus budgets should be used to expand government spending on education, welfare and infrastructure: What Israel must do is continue reducing the national debt, the governor urged.

Eventually another recession will come, because it always does, he pointed out. Everywhere in the world, seven good years are followed by seven lean ones. What people forget is that when Israel's lean times arrived, the government was unable to exercise anti-cyclical policies because of the towering government debt. The same happened in Germany and France: When a recession arrived, the governments were helpless because of their giant debt burdens.

Meanwhile, because it did not have that debt problem, in 2001 and 2002, the United States managed to spend its way out of the recession while cutting taxes, Fischer explained.

Times are good now, to be sure, he noted: Israel must exploit the fact that it is on a roll to reduce debt and prepare for harder times ahead.