the main motive force behind it, particularly in the 1990s when we moved from foreignexchange control to free capital flows, from a fixed exchange rate to an exchange rate determined by market forces, and from inflation at a level of 15 percent to 20 percent a year to price stability. for these achievements we owe thanks to the previous governors, professor jacob frenkel and dr david klein. the government operates within a framework of long - term fiscal discipline the purpose of which is to reduce the burden on the economy of debt, taxation and government expenditure. the public in israelhouseholds and the business sector - benefit from complete freedom in regard to foreign currency ; the economy is an open one in the areas of trade and capital movements ; the capital market is developing constantly, and the government has severely curtailed its involvement in it and in the economy in general ; and the bank of israel pursues an independent monetary policy - mainly due to the nonmoney - printing law of 1985 which simply forbade the bank to print money for the government's budgetary requirements. it is important to observe at this early point that the main target of that long - term strategy is the achievement of sustained growth which we all wish for. it is the basis for improved welfare of the whole population and for welfare policy that will deal with its weaker strata. and indeed, israel's economy achieved a growth rate of over 4 percent in 2004, and although the data relating to real activity in 2005 are not unequivocal, it seems to us that growth for the year as a whole will be between 3. 5 percent and 4 percent. employment data so far show an impressive improvement, at least in the first four months of the year. are these accomplishments enough, and can we now take it easy? obviously that is a rhetorical question, the answer to which is a resounding " no! " many important challenges still confront us : the main challenge is to continue to maintain the achievements that have been attained. much work has been put into reaching this situation and much energy invested in it over many years. relinquishing the accomplishments would soon take us back to where we were and make us start the whole procedure over again. that is too dangerous a game to play, and we should not consider playing it. one of the lessons i learned while at the imf was that one can destroy in less than a year an economic achievement for which one worked for more than a decade - a lesson applicable not

is provided from outside of the banking system, and this of course has major implications for the level of competition in this sector. from the point of view of business customers, and primarily large ones, there is an alternative to the banking system. of course, the development of the nonbank credit market also has implications for stability. i would mention that the corporate bond market, which was less supervised than the bank credit market, was the only market in israel that was significantly affected by the global crisis. the development of the consumer credit market and the reforms carried out to reduce concentration have also affected banks ’ credit activity. the freed - up sources of capital were increasingly channeled to consumer credit, both housing and non - housing, which was provided for the most part by the banks and has been characterized by a high rate of growth in recent years. the growth in consumer credit and the fact that it was divided among all of the banks is evidence of the increasing competition between the banks in this market. as is known, the mortgage market is a particularly competitive market and the growth in the volume of mortgages began a number of years before the growth in consumer credit. it is possible, therefore, that we are in midst of a process of increasing competition in the consumer credit market. who hasn ’ t recently received a text message or email with an offer of credit? within a few years, we have arrived at a situation in which the quantity of consumer credit is equal to almost half of the quantity of housing credit and therefore we are starting to see an increase in the level of competition in the non - housing consumer credit market as well, against the bis central bankers ’ speeches background of steps taken by the bank of israel in recent years, even prior to the planned reforms in this sector. in view of the rapid growth in consumer credit ( which is intended for current consumption, such as non - housing credit, student loans, and the like ) in recent years, it is worthwhile to examine these developments relative to other countries. as a result of the rapid expansion in recent years, we have arrived at a situation in which the ratio of consumer credit to gdp in israel is relatively high – similar to its level in the us and higher than in countries such as the uk, france, the netherlands and sweden. one of the sectors generally considered problematic, from the viewpoint of both prices and access to sources of financing, is the small business sector. this problem is not unique to israel and the volume of credit to the