karnit flug : the israeli economy – a macroeconomic perspective main points of a lecture by dr karnit flug, governor of the bank of israel, at the supreme court, jerusalem, 6 august 2015. * * * the israeli economy is an open economy that is greatly affected by developments abroad. this is reflected in the growth rates in the economy, which are very much in line with those abroad. the effect of activity abroad is mainly reflected through international trade, which affects demand for israeli exports, both goods and services. goods exports are in a virtual standstill, against the background of the virtual standstill in global trade, which declined slightly in 2013 and recovered slightly during 2014. in contrast, services exports have performed better than global trade. the labor market is in good condition. the unemployment rate is very low and this, alongside the continuing trend in the labor force participation rate, with new participants finding employment, reflects an increasing trend in the employment rate. the development of real wages per employee post indicates a moderate increase in recent years, and acceleration in the past year. monetary policy the bank of israel ’ s policy acts to achieve the bank of israel ’ s targets as set out in the law. the main target is achieving price stability, meaning meeting the inflation target, and subject to that, support for the other economic targets, chiefly growth and employment, and support for financial stability. in recent months, the inflation rate has been below the target, and in the past 12 months, prices have declined by 0. 4 percent, mainly due to a decline in fuel and commodities prices. in contrast, one - year forward inflation expectations are at the lower bound of the target range – 1. 0 percent. since the beginning of the year, the shekel has appreciated, which has contributed to lower prices, following a number of months of depreciation in the last few months of 2014. the appreciation also makes it difficult for israeli exporters to compete in the global market, and our estimation is that the shekel is appreciated relative to equilibrium levels. against the background of these developments – which are also affected by developments in the global economy – the bank of israel lowered the interest rate to the historically low level of 0. 1 percent, and purchased foreign exchange. the budget and the fiscal aggregates the government has recently been dealing with the finishing touches of the budget. the proposed budget for 2015 and 2016, which was approved by the government, includes deficit targets of 2. 9 percent

to corrupt public officials and the staff of financial institutions. hence the fight against money laundering is also the fight against corruption. money laundering is also used to support terrorist activities, because these activities require money which must be moved about in a clandestine manner. organised crime often has transnational characteristics, and criminals have no qualms about moving funds across international borders to suit their own ends. criminals seeking to launder money look for weak links in the global financial system. they find jurisdictions with weak or non - existent anti - money laundering legislation attractive, because such jurisdictions allow them to move money about and conceal their illegally acquired wealth without fear of detection. the failure to enact anti - money laundering legislation weakens our country ’ s capacity to combat financial crime, corruption and terrorism. bis central bankers ’ speeches the international community has made the fight against money laundering a priority. the financial action task force on money laundering ( fatf ) – an inter - governmental body – was established in 1989 to set standards and promote the implementation of legislative and other measures to combat money laundering. the fatf works closely with regional bodies, which include the eastern and southern africa anti - money laundering group ( esaamlg ), of which uganda is a member. i regret to say that uganda is now the only one of the 14 members of the eastern and southern africa anti - money laundering group which has yet to pass anti - money laundering legislation. unsurprisingly, this does not impress our friends and colleagues in the region, who perceive uganda as a weak link in the fight against financial crime. if we continue to delay enacting anti - money laundering legislation, uganda will also risk being added to the fatf ’ s list of “ high risk and non cooperative jurisdictions ”, which will undermine international confidence in the integrity of our financial system. this will be very damaging for our economy, as i ’ m sure that you will appreciate. the anti - money laundering bill which is currently before parliament was prepared by uganda ’ s anti - money laundering committee. the legislation is based on the international standards on combating money laundering and the financing of terrorism which are issued by the fatf and are generally referred to as the fatf 40 recommendations. as such the proposed legislation is in line with best practise in the rest of the world. given the transnational nature of money laundering, i don ’ t think that uganda should settle for anything less than the standards which are in force elsewhere in the world. we have