As Shekel Strengthens, Some Stand to Benefit

Israeli exporters are hurt but consumers and some debtors gain – or at should.

The rising shekel is panicking exporters and policy makers, with the first worried about their competitive advantage and the second worried about the economy. But many people and industries are quietly benefiting from Israel’s strong currency.

Beneficiaries include the great majority of people whose salaries are paid in shekels, who should be enjoying increased purchasing power, and importers, who can now lower prices. Also benefiting are people and businesses with debts in foreign currencies, who are seeing the shekel value of what they owe fall.

One of those debtors is the government itself. The Finance Ministry is enjoying an extra 2 billion shekels ($571 million) in this year’s budget due to its declining debt, lower interest payments and cheaper imports.

Nevertheless, the Bank of Israel has been buying foreign currency for months in an effort to shore up the dollar, to little avail. The greenback fell below 3.50 shekels on Tuesday before recovering slightly to 3.5070 on Thursday. At these levels the central bank, Finance Ministry and Prime Minister’s Office are scrambling for solutions.

Omer Moav, head of the council that advised Yuval Steinitz when he was treasury chief, says if Finance Minister Yair Lapid wants to help Israel’s middle class as he claims, policy should foster cheap imports.

“A strong shekel gives the people who live on a fixed salary or fixed pension a better quality of life,” says Moav. “Exports aren’t everything. For the Israeli consumer, a strong shekel is a good situation.”

Moav cites a misunderstanding about the relationship between foreign trade and the exchange rate, even among policy makers. People think it’s the exchange rate that dictates exports and imports, when it’s the other way around, he says.

Exporters are demanding that officials stop the shekel from appreciating, but there is no rational economic reason to do so, Moav says. “Instead of exports supporting Israelis, exporters are demanding that Israelis support exports,” he says.

Moav says that instead of giving in to pressure groups, policy makers should lower barriers to imports to rebalance the exchange rate, which would help Israel’s poorest by letting companies import lower-cost food and other consumer goods.

Prof. Avi Ben-Bassat, who teaches economics at Hebrew University, warns that the benefits to consumers from a strong shekel are easily offset by a slower economy that would lead to layoffs.

He says that under normal circumstances the Bank of Israel should not intervene in the currency market, but it faces two problems: speculative capital flows into Israel and a massive inflow of dollars after the Tamar natural gas field went online earlier this year, reducing Israel’s need to import energy.

Ben-Bassat warns that Tamar – and the bigger Leviathan field that will go online in the next few years – may harm the export competitiveness of the rest of the economy, a phenomenon known as Dutch disease based on the Netherlands’ experience.

Whatever economists say about the benefits of a strong shekel for shoppers, retailers say they don’t expect the strong shekel to lower prices for apparel or many consumer goods, which are more affected by conditions in the local economy.

“The game of 1 percent this way or that way with the dollar exchange rate isn’t part of [stores’] daily considerations,” says Dudi Cohen, vice president for commerce at department store chain Hamashbir Lezarchan. “The market is competitive enough that often products are already being sold below the dollar exchange rate.”

In the travel industry, the impact of the strong shekel has been small. “We’re seeing some prices go down but not significantly,” says a senior executive at tour company Magic Carpet. Demand is so low in the winter that airlines have little reason to compete on price.

An area where consumers seem to be taking advantage of the strong shekel is e-commerce. At eBay Israel, sales have surged 60% in recent weeks, which the company’s business development manager, Elad Goldenberg, attributes to the growing awareness of lower prices on the Web.

Not just the weakening dollar but also the Christmas season has buoyed orders at delivery company Buy2USA, says its CEO, Yaron Ben-Eli. “In the past 30 days we’ve received orders equivalent to what we typically get in a month and a half,” he says. “We’ve hired another 20 people in the U.S.”

Ofer Vaknin