The IMF last night published its 2009 Article IV Consultation with Israel. The IMF said, "Strong policy measures were adopted in response to the impact of the global crisis."
It found, "The resilience of the Israeli economy during the global crisis reflected strong policy responses, robust fundamentals, prudent bank supervision, public debt reduction, and structural reforms in recent years." .
The IMF cautions, however, "The global outlook remains highly uncertain, and the slower medium-term global growth would have adverse implications for Israel’s potential growth rate." The IMF recommends that "long-term anchors in Israel’s policy frameworks should be strengthened to allow a flexible response of policies to short-term developments and to stimulate long-term supply."
The IMF predicts that Israel's GDP will grow by 2.5% in 2010, well below the Bank of Israel's forecast of 3.5%.
The IMF said that with an improving economy and Israel's history of high inflation, "Directors welcomed the steps taken to begin withdrawal from unconventional monetary policy measures - including preprogrammed foreign exchange intervention -and to increase interest rates. They noted the authorities’ commitment to avoid targeting specific levels of the exchange rate. Discretionary interventions should be formally terminated, for all but the most exceptional market circumstances, once the policy interest rate is well above its effective floor on a sustained basis. Directors urged an early completion of all steps to adopt the Bank of Israel Law."
As for the banking system, the IMF notes that "The Israeli banking system has weathered the crisis well, Directors saw scope for a further strengthening of the banking prudential framework. Comprehensive banking stress tests, regular publication of a financial stability report by the Bank of Israel, and closer coordination among various regulators would all strengthen transparency and stability. Some Directors recommended consideration of a formal deposit insurance scheme."
Published by Globes [online], Israel business news - www.globes-online.com - on January 26, 2010
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