23 July 12 13:17–Every time that the dollar makes headlines, for some reason a picture of Governor of the Bank of Israel Prof. Stanley Fischer is attached. Fischer has taken a lot of criticism for his policy of buying dollars. Who didn’t criticize him – the Ministry of Finance, OECD, and top economists. It’s hard to forget the piercing criticism published in “Globes” by hedge fund advisor Avi Tiomkin, who called Fischer “the worst governor in Israel’s history”.

The Bank of Israel has made many mistakes along the way. It helped inflate the real estate bubble, and managed the currency war somewhat clumsily, but it now appears that the last of critics has fallen silent. The Bank of Israel’s foreign currency reserves have saved Israel from economic catastrophe. The Bank of Israel is holding the reserves very close to its chest, and in times like these, they warm the heart, and Fischer does not appear to be ready to release them anytime soon.

We are hearing much less prattle from Prime Minister Benjamin Netanyahu and Minister of Finance Yuval Steinitz about the government’s growth and unemployment achievements. After the big bluff of the unemployment figures blew up in their faces, and with the growth rate falling, it is now clear to everyone that Israel is not much different from other countries. Add to this the headaches from Egypt, Syria, and, of course, Iran, and the headaches from the social protest, which has gained strength, you will understand why foreign investors no longer see Israel as a paradise.

In view of all this, it is now quite clear that the weakening of the shekel against the dollar, which has amounted to 18% over the past 12 months, prevented a real catastrophe, because data show that every 10% of depreciation contributes at least 1% of GDP growth. A year ago, the shekel-dollar exchange rate was NIS 3.40/$. It is not hard to see what Israel’s growth rate would be were it not for the shekel’s depreciation – almost zero…Read More>>

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