Finance Minister Yuval Steinitz addressed the International Monetary Fund and World Bank's annual conference in Istanbul Tuesday afternoon. He noted how hard it was to foresee the international economic crisis and said that despite Israel's good opening position, the crisis still had serous negative effects on the economy. But, the minister stressed, the Israeli economy is now well on the way to recovery.
The Iranian delegation left the hall when Steinitz started speaking.
Steinitz said he "would like to confirm Israel's support of the recent G20initiative to increase the resources available to the IMF to support emerging markets and developing countries."
The finance minister said Israel would "play its part in contributing to the IMF's resources and will participate in the two main funding programs - the NAB (New Arrangement to Borrow) and the Voluntary [Special Drawing Right] Allocation." Israel will provide the IMF, upon demand, a loan, up to 500 million SDR, or $800 million, which would be paid from Israel's foreign exchange reserves, said Steinitz. (See accompanying box.)
The Israeli delegation also included the governor of the Bank of Israel, Stanley Fischer; the director general of the Finance Ministry, Yarom Ariav; and the treasury's accountant general, Yehoshua (Shuki) Oren, who were present in the hall during the speech.
Steinitz told the forum: "The current crisis has found Israel's economy holding steady in a turbulent environment: high growth rates, public debt on a downtrend, budget deficit lower than planned and thriving hi-tech industry abundant with start-up companies and venture capital activities.
"Despite the strong fundamentals mentioned above, the crisis did have serious negative effects on our economy, due to the global nature of our real economy and financial institutions: export figures have sharply declined, risk premiums soared, the well-known credit crunch occurred, thus influencing the real economy and investments, suppressing the stock exchange and the growth rates."
But Steinitz continued to broadcast optimism, saying that "last year governments around the world were alarmed by a threatening global crisis. Today we stand here with cautious optimism. It is widely agreed the IMF and the World Bank have reacted promptly, and with proportionate measures, to the global financial and economic crisis. It should be noted that the IMF, with it strong analytic capability, should play a key role in the future development of international standards for financial surveillance."
The former philosophy professor did not forget his field, saying: "From a philosophical point of view, one should consider the possibility that unlike the natural sciences, the science of economics is immanently imperfect. This is due to the deep seriousness of the psychological aspects of the field, which means that a widely accepted theory might change our behavior to the extent of refuting the underlying theory, and so on and so forth."
He added: "I believe that the very essence of the recent economic crisis is yet to be understood; until then, it would be quite premature to draw final conclusions. Although we might identify the causal sequence of the extraordinary events that led us into the crisis - starting a year and a half ago with the bursting sub-prime bubble, through the collapse of Lehman Brothers, and until today's early signs of recovery - we shouldn't ignore the fact that this causal sequence looks inevitable only in retrospective. We have to admit that this unique kind of encompassing global recession was unpredictable just two years ago; and the best testimony for this is that nobody predicted it."
He showed his optimism: "We can say with satisfaction, that the last three months have finally shown clear signs of recovery, as most macro-economic indicators have shifted direction: exports have risen 25%, tax revenues expanded again, and the Composite State-of-the-Economy-Index rose significantly. For the first time in 15 months manufacturing production and trade and services revenues significantly increased, while some improvement in the labor market was also indicated. The Bank of Israel, under the leadership of governor Stanly Fisher, reduced interest rates and conducted an expansionary monetary policy as well as acting in the foreign exchange market by discretionary purchases. Its policy reflects the need to return inflation to the target range of price stability, to support the recovery in economic activity, and to maintain financial stability. Despite the positive developments mentioned above, I strongly suggest that caution is still essential in this time of uncertainties. I want to emphasis that while the increase in unemployment in Israel seems to be currently contained, employment will remain one of the most challenging issues," said Steinitz.
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