Fischer Rates Exports Over Housing


Former Governor of the Bank of Israel Prof. Stanley Fischer told an Israeli business conference on Monday that the country’s economic priority should be exports, not lower housing prices, Globes reported.

“The price of housing is not the biggest problem in the economy. Export is about 40% of GDP, and its added value is 25% of GDP,” said Fischer. “This is the main driving force of the economy. The housing market accounts for 8-9% of GDP. It is not possible to manage the economy, and interest rates, and the exchange rate, solely to address the needs of the housing market. The availability of land is controlled by the government, not by the Bank of Israel. It is therefore a mistake to use interest rates in order to reduce the price of housing.”

Fischer dismissed the suggestion that the government’s failure to reduce housing prices is due to a conflict of interest, since it benefits from the situation:

“It is not a conspiracy for the government to want the bank system to be stable. The moment there is a problem in the system, there are problems throughout the economy. I hope the government thinks about the stability of the banks. It is possible that it would be better for everyone if the price of housing were to drop, but it needs to happen at a very slow pace. A sharp drop is not good. There needs to be a certain drop, like in 1996-2008, but not more drastic. The rate of the drop must be low.”

Israel’s overall economic picture is good, said Fischer. “There is no unemployment problem” in Israel, unlike other countries in the Western world, and if the Bank of Israel were to raise interest rates in order to address the price of housing, unemployment would rise.

“Were the Bank of Israel to use interest rates to curb the housing market, we would have an employment problem, because interest rates would cause the shekel to appreciate. Adding 15% to the value of the shekel would cause a great deal of damage to the economy, and, therefore, the Bank of Israel has not done this. In the U.S., they would be very happy if they had what the Israeli public has.”

On a personal note, Fischer, who has been living in the U.S. since departing the BOI, said of Israel, “I miss this place every day.”