Histadrut chairman Avi Nissenkorn expects Prime Minister Benjamin Netanyahu to disavow National Economic Council head Prof. Avi Simhon's advocacy of a halt in foreign currency purchases by the Bank of Israel. Simhon admitted that such a halt could lead to 20,000 layoffs in export industries. "To say that it's not so bad if 20,000 people are fired is a shocking statement, and should be denounced. When such things, which must not be said, are spoken around the prime minister, we expect him to disavow them. Industrial workers are the backbone of the economy, and are not among the wealthy."
"Globes": Simhon said that those laid off from industry would be hired in trade and services, and that employment would eventually go down, not up.
"Who said they will be hired in services? You're telling a 40 or 50 year-old worker who has worked 20 years in a factory, 'Now that you've lost your livelihood, go get another job'? In what job can he find work? As a contract worker? Will he get a pension? Do you know what a tragedy it is for the family of a laid-off worker? What it means when hundreds of workers are fired, let alone tens of thousands? Just how will they find a place to work? Is there alternative employment in services anywhere in Israel? What will you tell a worker at Pri Hagalil or a worker at a factory in the Negev who loses his livelihood tomorrow? I don't understand it."
But Simhon says that the Bank of Israel's support for exports is harming the economy.
"You have to support exports. There isn't a country in the world that doesn't support its exports. What should be done is to increase productivity in industry, raise wages, and shorten the work week."
As reported yesterday in "Globes," during a cabinet meeting on Tuesday, Simhon called on the Bank of Israel to immediately halt its foreign currency purchases, although he admitted that doing so would deal a severe blow to Israeli exports and was liable to cause 20,000 layoffs.
Manufacturers Association of Israel president Shraga Brosh told "Globes," "Fortunately for the Israeli economy, Simhon is not responsible for economic policy. The governors of the Bank of Israel in recent years have played the role of the responsible adult watching over the economy's main growth engine - exports. The Bank of Israel realizes what Simhon has trouble understanding - weak exports are liable to quickly cause a recession and the loss of tens of thousands of jobs - and is acting accordingly."
Economists: Simhon is right
While the Bank of Israel yesterday accused Simhon of advocating ideas unrecognized in the professional literature, his approach has won strong support among private sector economists. For example, a note published recently by Psagot Investment House Ltd., economists Ori Greenfield and Guy Yehuda call on the Bank of Israel to immediately terminate its foreign currency purchases. "In our view, the Bank of Israel should discontinue its intervention in the foreign currency market, and remove the strengthening of the shekel from its considerations in making decisions about the interest rate," they wrote. In a recently published article on the subject, Greenfield explained, "By intervening in the foreign currency market and lowering the interest rate, the Bank of Israel is trying to fight a war it has no chance of winning. The shekel has actually been strengthening for a decade, probably as a result of a long-term trend caused by a fundamental change in the Israeli economy, which is becoming an economy based more on services, more on research and development and innovation, and less on industry, simply because for a long time the Israeli economy's competitive advantage has not been in cheap labor, certainly in comparison with the labor markets outside Israel… stopping the intervention is likely to lead to appreciation of the shekel against foreign currency and the closure of industries and enterprises whose existence is unjustified. If they do not close down now, they will close down in a few years. This is where the state's role in providing a suitable safety net for those workers and minimizing as much as possible the consequences of this process of adjustment comes into play."
Published by Globes [online], Israel business news - www.globes-online.com - on June 2, 2016
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