"The concern at the continuing appreciation of the shekel is understandable, but further interest rate cuts do not look like an effective way of dealing with this problem. It could be that there is room for using other tools, not necessarily monetary, such as taxation of short-term capital movements, as instituted in other countries such as Chile, where this step has proven fairly effective," says Prof. Mario Blejer, one of the candidates for Governor of the Bank of Israel, in a first and exclusive interview with "Globes" since his name arose as one of the possible replacements for Stanley Fischer.
Blejer is due today in Washington, where, as every year, he is a guest of the International Monetary Fund, where he was a senior official for many years. Blejer will participate in eight seminars, at the annual meeting of the International Monetary Fund and the World Bank and at the annual meeting of the Group of Thirty (G30), the international economic and financial policy forum.
Up to now, Blejer has maintained a punctilious silence, and the timing of his breaking of that silence is no coincidence, and comes a few days after it was reported that there was a fierce dispute among the members of the Bank of Israel Monetary Committee over current monetary policy, and just before the announcement of the identity of the new Governor of the Bank of Israel by Prime Minister Benjamin Netanyahu and Minister of Finance Yair Lapid, who is also holding meetings in the US capital. Blejer naturally refuses to comment on anything to do with the problematic and unprecedentedly long process of choosing a new governor. The Bank of Israel has been without a permanent head for 102 days, and without one being nominated.
To return to the Israeli economy, Beljer explains that the inflow of capital that has led to the appreciation of the shekel hurts the competitiveness of Israeli exports, but that he believes that "this is the price of success". "In the last round, when the emerging markets started to lose altitude and their currencies started to weaken against the dollar, we saw the shekel remain stable and unaffected," he says, "We have not seen a change in the trend as far as the shekel is concerned. That indicates structural strength in the Israeli economy, and that it is not just a matter of a good period." He stresses, and this is his essential message, that the Israeli economy is in good shape. "Given the current international situation in which the exit from the crisis is not happening especially fast, the problems in Europe have not yet disappeared, and growth rates in the emerging markets are falling, the Israeli economy looks stable and satisfactory from a macro-economic point of view. The economy is back to an external surplus, there is price stability, a rise in employment, and a growth rate that is falling but adequate."
After the praise, Blejer indicates some of the less good points, but at this stage he clearly does not wish to sound critical: "I don't say that there are no risks or no problems. There is a clear problem of very high prices in the housing market alongside a problem in income distribution, which are difficult to solve in a short time." The inequality issue also worries Blejer, but he again stresses that "in general, the economy is in a good position, and although there are distortions that need correcting, the starting point is good."
Blejer, a central banker who specializes in monetary policy, repeatedly stresses the subject that is a burning issue for him: the role of central banks after the crisis of 2008. "The central banks took upon themselves the mission of 'saving the world', and it can be said that they didn't do badly. However, it's very hard to know what will be the consequences of such deep and powerful intervention in the long term," Blejer explains, "Today, the role of central bankers has greatly expanded, and there is a fear of a recoil or a reaction by the public and the politicians to such extensive intervention, which could be perceived as excessive."
Published by Globes [online], Israel business news - www.globes-online.com - on October 10, 2013
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