Despite exporters' hopes, no decisions were taken concerning ways to combat the effect of the dollar's fall on the Israeli economy at yesterday's meeting between Prime Minister Ehud Olmert, Finance Minister Roni Bar-On, and Trade and Industry Minister Eli Yishai with the governor of the Bank of Israel, Stanley Fischer.
The three did not ask Fischer to intervene in the foreign exchange markets. Exporters and the Histadrut labor federation had earlier raised the possibility of the central bank lowering interest rates to make the shekel less attractive, or even direct intervention in currency trading.
The meeting revolved around exporters' demands for the bank to help halt the dollar's fall, but no practical steps were decided upon.
Fischer outlined the state of the economy to the three ministers, emphasizing that the Israeli economy was strong and stable, and responds quickly. In many ways, he said, the Israeli economy is better off than that of most developed countries.
Israel is drawing large sums in foreign investment, which has also led Israelis to invest less abroad and more locally; and this has led to a return of money to Israel from overseas. During such turbulent periods, people do not want to invest overseas, explained Fischer.
Fischer said this is wonderful for the economy, but has driven the dollar down. He further claimed there is a surplus in the balance of payments, and this is usually a good thing - but it also makes the shekel dearer, especially in light of the problematic economic situation in the U.S.
According to Fischer, the shekel's appreciation is the result of the strength of the Israeli economy, and not the result of the difference in interest rates between the U.S. and Israel.
Olmert agreed with Fischer, saying the economy is definitely strong and there is nothing to be done about the dollar.
Bar-On said he had listened to the exporters' demands for intervention, but agreed it would put the economy back twenty years. It would be the wrong thing to do, because Israel has a stable and growing economy, and the cabinet and central bank's policies should continue, said Bar-On.
Yishai struck a different tone, saying that while he was not an economist, he agreed with Fischer's economic analysis. Nevertheless, he said, there is a need to answer the exporters' requests. He said that if the state does not act now, then it would pay for it later through the unemployment offices. Yishai said he has already heard of firings, and said the decision not to intervene was not final, and that he intended to propose alternatives to deal with the crisis.
A few weeks ago the cabinet decided to adopt a number of steps to aid exporters, but not to lower interest rates. The proposed actions include helping exporters with marketing and training; but nothing has yet been done.
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