“Much remains to be done, not least in bringing banking systems back to health, and there are good – though not conclusive – reasons to fear a substandard recovery”
— Stanley Fischer at an annual symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming, 2009
The recession is over,” proclaimed newspaper headlines in Israel on the back of a 1% GDP rise in the second quarter. But one man remained skeptical. Stanley Fischer, Governor of the Bank of Israel, maintained that, “we still have not reached the end of the story, and we still have not seen the low point of the recession.” The Israeli economy has escaped relatively unscathed so far, but being an export-driven economy, there is always the underlying threat of recession.
Often described as one of America’s top economists, Fischer is known for his cautious approach. Born in Zambia in 1943, at the age of 13 he moved to Zimbabwe with his family. Fischer first came to Israel in 1960, studying Hebrew while working on a kibbutz or agricultural settlement before going to the London School of Economics. Always a brilliant student, he earned his doctorate at the Massachusetts Institute of Technology (MIT) in Boston where he later became a professor and headed the department of economics. Fischer embarked on a financial career by becoming vice president and chief economist of the World Bank. He then moved on to become the first deputy managing director of the International Monetary Fund before joining Citigroup in 2002 as vice chairman.
Fischer was appointed Governor of the Bank of Israel in 2005 and subsequently attained a dual American-Israeli citizenship. His steady watchful eye is widely regarded as a factor in maintaining Israel’s economic stability. In September 2008, while economies worldwide felt the heat, Israel watched from its relatively undisturbed spot thanks to a series of pre-emptive measures that the central bank had taken more than a year before. Having faced various financial melting points before, including the Mexican peso crisis of 1994, the Asian financial crisis of 1997 and what he calls the “most frightening” of all, the Russian Ruble/Long Term Capital Management Crisis of 1998, Fischer had already sensed a storm brewing in 2007. From July 2007, the Bank of Israel started shoring up its foreign exchange reserves. And by March 2008, as the first financial giant began to stumble, Fischer decided it was time to hike up foreign currency reserves purchases along with long-term government treasury purchases. Anticipating increasing instability, he also made sure that strict spending limitations were kept in place and maintained.
Even so, Israel is not completely immune from the turmoil, given that one-third of its exports are transported to the United States. Apart from that, Fischer is dogged by ballooning inflation, the product of extensively printing shekels to stockpile dollar reserves. Now, with the sudden recovery in domestic demand in the second quarter, inflation has shot up more than 3% since the beginning of this year. Adding to this, a booming real-estate market is beginning to show signs of a bubble threatening to burst. This has necessitated a hike in interest rates, with Fischer increasing the overnight lending rate to banks by 0.25% for September 2009.
Still, President Shimon Peres has lauded the central bank head’s work so far, saying that he has managed the financial crisis with integrity. Fischer is indeed up to the task: the man who was once thesis advisor to Ben Bernanke at MIT remains unfazed.
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