Lapid: Work Needed to Weaken Shekel, Fix Bureaucracy
The shekel continues to remain strong against nearly all foreign currencies – a sign of Israel's robust economy, but a disaster for exports, according to the Israel Manufacturers' Association. For years, the group has complained that Israeli products are more expensive, hence less competitive, when sold abroad, and has warned that if something is not done to weaken the shekel, Israeli exporters may find themselves unable to export competitively – and out of business.
Speaking Thursday, Finance Minister Yair Lapid said he would not let that happen on his watch. “The manufacturers are the backbone of the Israeli economy, and they need help, specifically a weaker shekel,” said Lapid. “We are obligated to help do this.”
Monetary policy, which affects the shekel's value on international markets, is in the hands not of Lapid's Treasury, but of the Bank of Israel. Newly-installed BOI chairperson Karnit Flug has pledged to continue the policies of her predecessor and long-time mentor, Stanley Fischer, who kept Israel's interest rates somewhat higher than those of the U.S. and many European countries.
The effect of that has been to attract foreign currency to invest in shekel-denominated bonds and financial instruments, making the shekel more in demand than the foreign currency being used to buy it - hence the higher values for the shekel. When they export, however, companies must denominate their products and services in foreign currency terms (usually dollars or euros), and they cannot raise prices because the dollar and euro is worth less in shekel terms – which companies have to use to pay their workers and suppliers in Israel. The bottom line is that exporters bring home the same amount of dollars, which are worth less in shekel terms, thus crimping their budgets.
The problem is expected to get even worse in the coming years, the BOI said in a recent statement, as even more foreign currency finds its way to Israel to pay for the natural gas Israel is going to be exporting. Lapid said he was in consultation with all the relevant parties to look for ways to lower the relative value of the shekel without sparking inflation. Lowering interest rates would make Israel less attractive to foreign investors, thus lowering the value of the shekel, but could set off inflation.
In addition to the shekel issue, Lapid said it was his job to make Israel's bureaucracy less intrusive, allowing businesses more freedom in conducting their affairs. “We must try to streamline the bureaucracy in services, in order to improve the financial position of the middle class and leave more money int their pockets,” he said.
“Part of my job is to prevent unemployment in any way I can,” Lapid added, referring to recent reports large retailer Office Depot was bankrupt, a situation that will result in the loss of hundreds of jobs. “We will intervene and help where we can,” he said.