In recent weeks, the criticism of Governor of the Bank of Israel Stanley Fischer and his policy of buying foreign currency seems to have risen to a new pitch. Against the background of Fischer being named the world's best central banker in 2010, and the praises he has won from most of the world's most important financial bodies, the latest hue and cry seems all the more like an orchestrated campaign by those who oppose Fischer and his policy.
Criticism is legitimate, indeed extremely important, and veteran "Globes" readers have more than once read my criticisms of the Bank of Israel's tactics in intervening in the foreign exchange market. For months, I have been arguing that intervention in its current format has lost all impact, and that the Bank of Israel, together with the Ministry of Finance, need to step up the continuing battle against the speculators. The past few months have demonstrated this clearly. The gloves are off, and no-one hides their intentions any more.
What disturbs me about the criticism voiced recently is that most of the critics fail to present what intervention has achieved, and offer no alternative. This has the unpleasant look of orchestrated criticism, dictated by the position of the critic.
Everyone writes from their own interested point of view, and I expect the reasonable reader to be able to read between the lines when an analyst or economist of a foreign bank or local investment house that has gambled on appreciation of the shekel writes in condemnation of a Bank of Israel policy that gets in the way.
There is also a senior writer in one of the economic newspapers who has decided (one wonders why) to embark on a crusade against Fischer, and for more than a year has calculated the cost of the foreign currency reserves at least twice a month in huge headlines, all the while inveighing against the Bank of Israel in general and Fischer in particular. Disgraceful, to my mind.
I expect any economist who raises legitimate criticism of the cost of intervention to invest a little work in analyzing the data under reasonable assumptions, and to state how much the bank of Israel's intervention has saved the Israeli economy: how much stability it has contributed to exports; how many jobs have been preserved as a result of the fact that the average shekel-dollar rate in 2010 was around 3.7/$, and not 3.4$ (at best); how much this has contributed to the good unemployment figures the economy boasts; and how much it has contributed to growth.
I expect anyone who argues that the intervention has failed and is inappropriate to put forward a realistic and appropriate alternative. Spare us the "free market" mantra. Everyone by now realizes that the free market is dead. Even Sarkozy and Merkel in their New Year speeches have emphasized preserving the currency and tightening regulation.
Don't talk to us about the current account surplus. It's very easy to do the sum and to see that, in 2010, the Bank of Israel bought foreign currency in an amount considerably exceeding the entire current account surplus. Add to that the hedges that the Ministry of Finance put in place, and the billions invested overseas by Israelis (more than $7 billion, and counting), and it should be clear to you that the shekel ought to have depreciated last year, rather than appreciating by 7%.
Forget the gas. Read what the Bank of Israel and many independent experts say: if we see the first dollar landing in Israel in exchange for gas by 2020, we'll be grateful.
There's a beehive with honey in it here, and it is attracting more and more bees, but also hornets and other pests. Anyone who thinks that the policy is a failure, should stand up and, alongside the criticism, state what are their practical alternatives. That's what I do, and that's the kind of conduct that I expect of any analyst or economist who wants their criticism to be respected.
To conclude, since we all write from an interested point of view, I will mention that I represent exporters who want to see the shekel depreciate, importers who want to see it strengthen (for the sake of fair disclosure, more exporters than importers), and foreign currency strategy players, who, on the whole, would like to see a stable currency.
My current working assumption for 2011 is that additional steps will be taken to prevent the shekel from strengthening, especially given the expected global strengthening of the dollar this year. Since I don't know whether these measures will be introduced at 3.5/$ or 3.3/$, in January, March, or September, I recommend my clients to prepare accordingly.
I wish everyone a successful investment year. Yossi Frank is CEO of Energy Finance.
Published by Globes [online], Israel business news - www.globes-online.com - on January 3, 2011
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