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Summary of Address by the Governor of the Bank of Israel today at the First International Conference for Regional Cooperation in the Middle East
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Below is a summary of the address by the Governor of the Bank of Israel at the First Conference for Regional cooperation in the Middle East, held today in Tel Aviv.
The Governor spoke of the volume of trade between the countries of the region and Israel, which is not very high. He noted, however, that trade between the Arab countries themselves is also relatively low, as their industry structure results in most of their exports being directed at markets outside the region, mainly exports of energy products. Thus, trade between Israel and its neighbors is not expected to reach the level of trade between Israel and the large blocs such as the US, Europe and East Asia, even in conditions of full peace in the region, and an increase in trade under conditions of peace should not be expected to constitute an engine of significant economic growth. This should not be taken to mean that it is not worth acting to increase the extent of trade; there is still considerable potential for growth in this field which would be beneficial to all sides, and increased trade has important political implications and significance for relations between trading partners. In this context there is room for inter-governmental initiatives, projects and joint investments, but expanding trade must be based on activity of the private sector, which can flourish only under conditions of peace, or more precisely, conditions of warm peace.
The Governor focused on the importance of the relations with two of the economies in the region: the Turkish and Palestinian economies. He emphasized that although Israel's economy is larger than those of most of the countries in the region, Turkey, with a GDP in excess of $700 billion, is the largest in the region, and is becoming a large economy also in global terms. Turkey is re-establishing its status as a central entity in regional trade vis-?-vis Asian countries, Europe, and the Middle East. Turkey is a significant trading partner for Israel, and the consequences of damage to trade with Turkey would be serious for Israel.
The Palestinian economy, in contrast, is not a large economy, and trade relations between Israel and the Palestinians are not very significant, from the macroeconomic aspect, for Israel's economy. With that, trade between the two economies is very important politically. The Palestinian economy is very far from fully realizing the potential it could have under conditions of peace. Sophisticated policy makers and business people work there, who can take advantage of the opportunities that will come their way for the good of the Palestinian economy. Under conditions of peace, the Palestinian economy will be able to grow at a very fast pace–since its current per capita GDP is very low. Rapid growth of the Palestinian economy will have an effect, although not significant, on Israel's economy, and a very significant impact on Israeli-Palestinian relations.
The Governor sought to dispute the claim that a people that does not have political independence can be compensated with an improved economic performance. The claim had often been made in the past regarding countries in Africa and is incorrect. The Governor emphasized that a healthy and stable relationship between two nations needs to be based both on a sound political situation and on economic prosperity.