stanley fischer : challenges facing the israeli economy remarks by professor stanley fischer, governor of the bank of israel, upon taking leave of the knesset finance committee, jerusalem, 4 june 2013. * * * i would like to thank the members of the committee for their wishes. it was an honor for me to serve as governor of the bank of israel. it was not readily apparent that they would offer the position to someone who was not a citizen of israel. but in the end, that is what happened, and my wife and i are very happy for the extraordinary opportunity that we had. many people on the professional team at the bank of israel helped me during this period, contributing much to the work at the bank during my term of office. we must not forget that i arrived in 2005, when the economy was in the midst of a period of impressive growth, and one of the reasons for the fact that we made it through the global crisis was that the economy entered the crisis in good condition : the government budget was balanced in 2007, the current account was in surplus, the banks were strong — everything required for a country to successfully get through the crisis was in place in israel before the crisis. i would also like to thank the former chairman of the finance committee, mk rabbi moshe gafni, who contributed much to the system ’ s stability, and to the legislation of the new bank of israel law, which was also helped along by former knesset speaker mk reuven rivlin. i recognize the fact that you cannot work alone — it is necessary for there to be people who agree to work with you, and in this context, i also note the opposition leader who is here, who was then in the coalition and who assisted with the passage of the law. if i compare the situation of the economy today to what it was in 2005, the debt - to - gdp ratio is much lower, although the government deficit is higher. we moved to a situation where the current account is balanced compared to the surplus we were in before the crisis. the unemployment rate today is very low in an historic perspective, and the employment rate is higher. the incidence of poverty remains more or less at the same level as it was. the exchange rate is more appreciated today, which to a large extent is a result of the strength of the economy — people want to live in a strong economy with a weak exchange rate, but this is a situation that generally does not happen. the foreign exchange reserves are obviously much higher

scandinavia all the time, where labor productivity is very high. it is important that we deal with all the challenges in education, the bureaucracy, infrastructure and more, in order to deal with the problem of low productivity. the supervisor of banks headed a team that presented important conclusions regarding reinforcing banking competitiveness. each time i would meet a senior banker from abroad, i would try to convince him to start banking operations in israel. i didn ’ t succeed, and since 2008, i have stopped trying since the crisis led banks to stop expanding their operations overseas. however, at the team ’ s recommendation, there are many steps whose implementation can help reinforce competitiveness in the banking system. bis central bankers ’ speeches defense expenditures increase from year to year, although their share of gdp continues to decline and has now reached its level from the beginning of the 1960s. still, defense expenditures are the largest component in the state budget. it is clear to all of us that we live in unsafe and uncertain surroundings. it is the government ’ s duty to protect its citizens, and there is therefore no alternative to large budgets for the defense establishment. this also has positive ramifications, such as the defense establishment ’ s contribution to the development of the high - tech industry. we do not have the luxury to think that we are sweden and to plan our expenses without needing to allocate about 5 percent of gdp to defense. we must continue to provide ourselves with defense, but the allocation of more money to defense is not the only solution. we must also try to find other solutions, and try to achieve a peace agreement with our neighbors, including with the palestinians. the phrase, “ there is no partner for peace ” is a self - fulfilling phrase. you need two for an agreement, and if we don ’ t want to look for a partner, we will remain in the current situation. we must look for the partners for peace. until we reach agreements, it will cost us more since we will need to reinforce our readiness. however, in the long term, we will benefit from it, and it will have positive ramifications in various areas. we must, therefore, find a way to act more proactively in order to stop the conflict that has continued here for far too long. bis central bankers ’ speeches