The natural gas receipts from the Tamar field should not be invested in Israel, to prevent the shekel from appreciating, said Governor of the Bank of Israel Prof. Stanley Fischer at the press conference where he presented the Bank of Israel Annual Report for 2012. He said that the receipts should be invested overseas because "more money in the economy will cause the shekel to appreciate, which will affect industry's ability to export. Known as the 'Dutch disease', we must avoid this by not allowing money to flow too rapidly into the economy. We must also not use all this gift from nature on the current generation, but keep it for the next generations."
Fischer also said that the budget deficit was structural, and that the government must deal with it. "There is a difference between us and other countries. The interest we pay is almost 4% of GDP, which is a huge amount. The defense budget is 6.5% of GDP. There is a group of similar countries, such as Australia, Denmark, the Netherlands, and Finland, which pay less than 1%. This is a huge difference. Israel's risk premium is the reason we pay more. We must deal with the budget because the economy cannot grow if we don’t."
As for housing, Fischer said that big problem was the complexity of the planning and building process. "There is a very, very long lag between a decision to build until execution," he said. A regional planning and building commission takes an average of five years to approve a plan, and a building permit takes an average of three years.
Fischer said that the housing supply was inadequate for the population's needs in view of demographic growth. In response to his critics over the Bank of Israel's low interest rate, he said, "Had we not lowered the interest rate, we'd cause the shekel to appreciate, harming exports and investment, which would cause slower growth, higher unemployment, and less construction. The changes in the interest rate affect housing demand."
Fischer said that the mortgage restrictions were not only intended to restrain housing prices by reducing demand, but also to protect the stability of the banking system. He warned, "We must not create problems in the financial system. Every few months, we see the consequences of problems in the financial system in a different country."
The Bank of Israel's press release: Annual Report for 2012 .
Published by Globes [online], Israel business news - www.globes-online.com - on April 2, 2013
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