Stanley Fischer - the New Untouchable

Shraga Brosh wasn't born yesterday. The Manufacturers Association head knows that his proposed legislation has no chance of gaining Knesset approval.

Shraga Brosh wasn't born yesterday. The Manufacturers Association head knows that his proposed legislation has no chance of gaining Knesset approval. He also recognizes that there will not be enough MKs with a populist agenda who will vote in favor of a bill that transforms the governor of the Bank of Israel into a lame duck, undermines the stability of the economy and shatters Israel's standing in the world. He also realizes that it is impossible to pass a law in the Knesset that is not supported by Roni Bar-On and Ehud Olmert.

But Brosh has a different aim: to place the subject of the dollar's decline on the public agenda, and thus step up the pressure on Stanley Fischer, the bank's governor, and Finance Minister Bar-On. In this he was successful. The exclusive published Sunday in TheMarker did its job. The issue, which initially had been pushed aside, was at the forefront of the daily economic agenda. Fischer had to respond in a special press conference, and all the media outlets gave the subject particularly prominent coverage.

Brosh is facing enormous pressure from within the Manufacturers Association. Many industrialists who are experiencing losses because of the drop in the dollar's value attacked him during an association meeting last week. They demanded action.

They pay tens of thousands of shekels for membership in the association, and they want their president to go the extra mile for them. And Brosh delivered. Now he can look them all straight in the eye.

Brosh knows that there are other ways to assist the industrialists. For example, an immediate reduction in company tax from 29 to 25 percent. It is also possible to renew that loophole of expedited depreciation of equipment, or to increase the sums the state allots for marketing abroad, and for research and development through the Chief Scientist's office.

These specific means are favored by the industry and trade minister and Brosh, but they would come at a cost to the budget, which is already in a tough spot and is running short. In any case, Bar-On would oppose them.

Therefore, Brosh is trying to sign up as many MKs as possible to his proposal, but he is already working on getting the votes and support for grants for industry at tomorrow's Knesset Finance committee discussion.

But for now the economy has a new inviolable figure: Fischer. And that is a good thing. MKs recognize that the public will not forgive them if they harm Fischer, who has come to symbolize Israel's stability and responsibility to the outside world. MKs who promised Brosh support for his bill were startled bythe strong response of Fischer, who described the proposed legislation as "a populist game," and they are now keeping their heads down and not signing his bill.

Only Shelly Yachimovich, who is guided by populism, supports Brosh's bill. She explained with ease how the legislation will save the workers. Fischer's enormous knowledge and international experience leaves her entirely unmoved.

In all western countries, it is common knowledge that the exchange rates are set by the free market. Only in Israel is the Bank of Israel still expected to set a special rate.

About 10 years ago, when the euro was a fledgling currency, the industrialists and the farmers were screaming that something needed to be done to save exports to Europe. Now it's the turn of the dollar and exports to the United States.

When that same dollar reached the NIS 5 mark in June 2002, we did not hear any complaints from the industrialists. They did not offer to give up some of their profits and set up a "rainy day" fund, for when the dollar changed direction. Because profit is always theirs, but the losses are ours to share.

Under the current circumstances, it is entirely unclear whether the dollar's value will rise if Fischer is forced to lower interest rates. In mid-2007 the interest rate in Israel was significantly lower than that in the U.S., but nonetheless, the dollar continued to drop in value.

After all, there are many other influences on the exchange rate. For example, the influx of dollars to Israel as a result of the sale of Israeli high-tech companies and the withdrawal of investments by Israelis abroad as a result of the uncertainty there.

It is time to understand that the Bank of Israel has only one function: preserving price stability. Budget policy, taxation, reforms and wages - which are decided by the cabinet and the finance minister - set the pace of economic growth and the employment rate. The Bank of Israel governor only assists in these tasks - by achieving price stability.

The new law of the European Central Bank states that the main purpose of the bank is to preserve price stability. Concern for economic growth and employment are second on its list of priorities. This is the way it should be here, too. After all, we are not smarter than the French, the Italians and the Germans put together.