Exports from the high-tech sector dropped 13.5 percent in
the second quarter (compared to the first) to $2.4 billion,
making it the worst quarter in six years, according to the
Manufacturers Association. Meanwhile Finance Minister Silvan
Shalom and Governor of the Bank of Israel David Klein
continued their ongoing public debate.
The exports were 10.7 percent lower than the same period
last year and high-tech depressed overall exports from the
industrial sector by 6.5 percent for the quarter.
Nonetheless industrial exports for the first half of the
year were 4.4 percent higher than in the same period of
2000.
Shuki Abramovich of the Manufacturers Association said the
next few months are likely to see more of the same, given
the drop in global consumer spending.
Other sectors reported a drop in exports of between one and
five percent, including metals, food, mining, paper and
printing. Machinery and equipment registered a 13 percent
drop in exports, as did chemicals.
Responding to an interview Klein gave Dow Jones on Sunday,
Finance Minister Silvan Shalom indirectly accused him --
without mentioning his name -- of calling on international
parties to exert pressure on Israel. Shalom also criticized
Klein in the cabinet on Sunday.
The real issue between them is who is responsible for the
current slowdown, and who is responsible for ending it.
Shalom, who became Finance Minister three months ago when
the Sharon government took over, had hoped to use his
performance as Finance Minister as a springboard to the
prime minister's office. Instead, the deteriorating economy
has made it difficult for him to show success, so he is
focusing on at least shifting the blame to the Bank of
Israel and its policy of high interest rates.
Shalom also said he does not accept the statement that there
are those who must pay the price for economic policy and be
left behind. In his view, the economy must be strengthened
without harming the weaker elements of society. He
announced, "We will continue to demonstrate responsibility
and budgetary discipline. I will act to decrease the
government debt in terms of GDP, but we must act
responsibly.
Recently, Prime Minister Ariel Sharon and Shalom decided to
appoint a committee that would establish a nonpolitical
monetary advisory panel, ending Klein's sole decision making
abilities regarding to interest rate policies. This would be
a very strong attack on the independence of the Bank of
Israel. A day later, however, the prime minister said that
he would consult with the Governor in appointing the
committee.
Responding to Shalom's attack, the Bank of Israel said it
has been working for over a decade to secure and stabilize
the foreign currency market. "In the past four years,
Israel's foreign currency market has opened up, with growing
volumes, and low volatility," the central bank said in a
statement.
The central bank added that the market's stability was known
to both analysts and international credit rating agencies.
At the same time however the Bank of Israel claimed the
foreign currency market's stability would be enhanced by the
trading band's elimination, while its existence could lead
the central bank into "unnecessary" interventions in the
foreign currency market.
There is always tension between the Finance Minister whose
concern is usually the short term and whose primary goal is
general growth and funding the government's budget, and the
Governor of the Bank of Israel who usually takes a longer
view of things and whose primary goal is economic stability.
Thus, in the past several years the Governors of the Bank of
Israel (Jacob Frenkel and for the last year and a half David
Klein) have come under fire for keeping the interest rate
high. Those high rates enhance the strength of the shekel
and preserve stability, but many feel that it is at the
expense of growth.
