Crisis? What crisis? - Monocolumn | Monocle


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24 September 2009

The somewhat odd celebrations on the first birthday of the financial crisis offered much remorse and only dim rays of hope. Standing in stark contrast, though, was the Israeli version of that anniversary, marked mainly by the feeling that the worst is already behind us, and that actually it wasn’t that bad.

This week, UBS joined Morgan Stanley and Barclays Capital in projecting positive growth of 0.3 per cent for the Israeli economy this year. According to The Economist, this will make Israel the only developed economy in the world with a positive growth rate in 2009.

Earlier this month, Moody’s Investor Services concluded that Israel’s recession appears to be over, while HSBC economists wrote that Israel had shown “tremendous resilience to the global recession”. In August, Bank of Israel governor Stanley Fischer was the first among his colleagues in the West to raise the interest rate, thus proclaiming an end to the recession.

So what went so (relatively) well here?
First of all, Israel entered the crisis in a very different situation to others: with no toxic bank assets and no property bubble. Israeli banks have traditionally been conservative lenders, and “sophisticated” financial tools were far less in use. Public and private levels of indebtedness were also very low.

Crisis did hit eventually, exports shrank and around 2 per cent of the workforce (more than 60,000 people) joined the ranks of the unemployed – the rate now stands at 7.9 per cent.

The big star of the crisis is no doubt Mr Fischer, who took a few resolute steps. He cut interest rates, bought government bonds and spent some 100bn shekels (€18bn) to buy dollars in order to help exporters.

But it seems that his most useful asset as the crisis unfolded was his leadership skills, and his ability to “speak softly and carry a big stick”. On the one hand, he was much more visible than usual, sending the market and the citizens a clear message that someone’s taking care of things. On the other hand, he reiterated time and again his refusal to spend public money in order to bail out companies.

Another important lesson is the advantage of being small. Dan Catarivas, director of foreign trade at the Israeli Manufacturers Association, says that Israeli companies were very flexible this year, and managed to shift their activities to markets with high demands. “Israeli companies are no General Motors,” he says, “and they can easily shift from providing services to the car industry, for example, to selling components to electronic goods manufacturers.”

Israel, of course, is not comparable to the big players, but rather to medium-sized economies, such as Hungary, Greece, Portugal and the Czech Republic. In the Israeli case, the crisis showed that it’s sometimes easier to navigate a small speedboat than a huge aircraft carrier.


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