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If there is anyone out there who predicted four months ago that the shekel-dollar exchange rate would now be NIS 4.38, let him step forth.

Then, on the eve of the elections, the economy was embroiled in a serious crisis; the deficit had ballooned, and there was talk of the need for an economic bail-out plan. The dollar was in great demand, gaining strength day after day, until it hit a peak of NIS 4.9 on January 22 and February 16.

Most analysts believed that "what was is what will be," and, therefore, when the exchange rate threatened to hit NIS 5, they believed that this threat would be realized. No one thought that the dollar would plunge to a level of NIS 4.38, as it did yesterday.

At that point in time, however, it was announced that Benjamin Netanyahu would be the new finance minister, and officials at the ministry's budgets division sat down to prepare an economic rescue plan that included painful budget cuts and reforms.

The public gave Netanyahu enormous credit, which was expressed in immediate rises on the stock exchange and a fall in the dollar, even before he had presented any plan at all. In addition, to his good fortune, the Americans began their war in Iraq on March 20, at which point President George W. Bush announced that he would grant Israel the loan guarantees it sought.

That was the final signal for which the economy had been waiting. Until then, Israel's financial situation was so dire that it could raise capital abroad only at the prices normally reserved for bankrupt countries. But the moment Bush promised the loan guarantees, the danger of another financial crisis (like that of June 2002) disappeared and the dollar promptly lost its charm - because if the state can raise $3 billion a year at low prices, it has no foreign currency problem.

In May, the Knesset approved the economic program and the feelings of uncertainty consequently declined - even though the projected budget deficit (5 percent) is still too high. In addition, the growing expectations over the last two weeks of a cease-fire and an improvement in the security situation - a necessary condition for renewed growth and falling unemployment - influenced the sale of the dollar reserves that had been accumulated for a rainy day, and thus contributed to the American currency's continued decline.

Another key factor in the shekel's appreciation is the extremely high interest rate gap between the shekel and the dollar. At present, one can get 6-percent interest on short-term shekel deposits, while a similar investment in dollar deposits would yield less than 1 percent. Thus, the minute the threat of a financial crisis and a sharp depreciation had passed, conversions of dollars into shekels accelerated rapidly, because people wanted to take advantage of the high interest rates.

Overseas banks, foreign investors and Israelis who had transferred dollars overseas are all returning them now to Israel in order to purchase shares on the stock exchange (the reason it is rising) and to benefit from the high interest rates.

And this is where Bank of Israel governor David Klein enters the picture. Klein is supposed to make a decision this Monday on how much to lower the interest rate - and this time, there are no more excuses. The consumer price index fell in each of the last two months; inflation for the year is expected to be only 1.5 percent; the money supply has dropped over the last year; long-term interest rates have fallen sharply; and the Bank of Israel's key lending rate (8 percent) is far higher than those of the European Central Bank (2 percent) and the U.S. Federal Reserve (1.25 percent).

There is only one problem left - the overly-large budget deficit.

Therefore, the governor must cut the interest rate significantly. Such a cut would strengthen the dollar and consequently help exports; it would also lower financing costs for local businesses, and would slightly reduce the usurious interest rates paid by households, thereby encouraging economic activity.

This would not be a gamble on Klein's part; it is a necessity.