stanley fischer : tomorrow ’ s economic agenda address by professor stanley fischer, governor of the bank of israel, to the israel business conference, tel aviv, 10 december 2007. * * * the announcement in the newspapers about the israel business conference bears the slogan “ come and join us, so that you ’ ll be part of tomorrow ’ s economic agenda ”. and that is what i would like to talk about today, “ tomorrow ’ s economic agenda. ” the objective of such an agenda should be rapid and sustained growth, the benefits of which would be enjoyed by the whole population. such growth is critical for the future of the economy, the future of the society, and the future of the country. the reason is simple, and is like the effect of compound interest : if, for example, we manage to grow during the next 25 years at an average rate of 6 percent a year, in the year 2032 israel ’ s gdp will reach nis 2, 830 billion ( at 2007 prices ), compared with about nis 660 billion in 2007. if on the other hand the economy grows at only 3 percent a year over the same period, gdp will reach nis 1, 380 billion. that is a huge difference of more than 100 percent, and proves what my late friend professor herbert stein used to say : “ the difference between 3 percent growth and 6 percent growth is 100 percent. ” if we succeed in traveling along the path of rapid, sustained growth, we will have the means available to deal with the various problems confronting us – in the fields of education, the economy, the social fabric, security, etc. failure to do so will cost the country and society dearly. today i will speak about two important aspects of growth : ( 1 ) the fact that actual economic growth permeates the whole population ; ( 2 ) the need to maintain fiscal discipline. actual economic growth permeates the whole population growth of more than 5 percent a year, which the economy has been enjoying since 2003, significantly improves the standard of living of the whole population. a ) in 2006 the rate of poverty, based on the relative measure that relates mainly to income differentials, stopped rising. moreover, if we use the absolute measure of poverty, i. e., the ability to purchase a basket of basic goods, the rate of poverty actually declined in 2005 as well as in 2006. b ) the decline in unemployment since 2003 can be seen at all educational levels, including the lowest.

rate tool, which has reached a very low level. the bank of israel has for the past few years been pursuing a policy of involvement in the foreign exchange market in cases of excessive volatility in the exchange rate that is not in line with the fundamental economic conditions. the bank also purchases foreign exchange in order to offset appreciation pressures derived from market overshooting in reaction to the production of natural gas. it is important to note that our foreign exchange policy takes the long - term economic forces into account, and we are acting to give the business sector time to adjust to the trends derived from these forces. in order to deal with the risks derived from growth in the balance of housing credit, the bank of israel has for a number of years been placing various limitations on the mortgage market. these are prudential tools that reduce the risk both to the financial system and to borrowers. a few words on the long term. over time, we see very slow growth in the rate of productivity, and in parallel to growth, we were seeing growth in poverty and in inequality. the main challenge facing the israeli economy over the long term is to succeed in creating inclusive growth. i would like to explain what i am referring to by this term. i am referring to continued, sustainable growth whose results will be divided more equally among all parts of the population, such that they will support a higher standard of living for all sectors, and a reduction of poverty and inequality in the distribution of income. inclusive growth cannot be driven by a narrow growth engine. it must be broad based over a variety of industries, so that it can provide employment to all parts of the population over time. these include, for instance, small and medium businesses, tourism, and low technology industries – industries that can provide employment and income to workers at all skill levels. such growth, in the center of the country and in the periphery, will ensure that the labor market is able to also absorb those who join it from the sectors with relatively low human capital or with employment levels that are still low. the challenge in creating inclusive growth is immense. it is a goal that many countries are grappling with, and it is not easy to achieve. it is important that, in formulating its strategic plan for the coming years, the government focus its policy such that we progress in this direction. inclusive growth will contribute to strengthening the cohesiveness among various population groups and within the groups themselves. bis central bankers ’ speeches