How Israel coped with the credit crunch

The international credit crunch centred around a failed mortgage system in the USA and large, greedy international banks. Israel had been forced to sort out those issues years previously, so faced the downturn with a structurally safer economy.

Still, Israel’s strength lies in an export based system, and the world financial system was contracting. What was the Bank of Israel (BoI) and the Finance Ministry to do?

Professor Zvi Ackstein is the deputy governor at the B0I. In a fascinating interview in this Friday’s Hebrew newspaper, Yediot, he describes how his team responded.

They quickly identified that the shekel was gaining strength, primarily against the dollar. This was cutting in to the profitability of many companies, thus endangering employment. They also noticed that the change in the exchange rate was due to speculation, and not as a result of differences in import / export ratios.

The BoI acted. It deliberately and openly set out to buy dollars. This policy has continued to date. The results:

  • The shekel is slowly beginning to lose value against the dollar, helping Israeli exports maintain their competitive levels.
  • The BoI predicts serious growth of around 4% for 2010.
  • Interest rates will continue to rise, but they are not expected to leap forward under present circumstances.

Me thinks there are some lessons here for the wise folks of the international finance community.

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One Comment on “How Israel coped with the credit crunch”


  1. […] See more here:  How Israel coped with the credit crunch « Afternoon Tea In Jerusalem […]


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