Summary of the Address by the Governor of the Bank of Israel, Professor Stanley Fischer, to the Constituency Meeting of the IMF-World Bank, in Jerusalem

Summary of the Address by the Governor of the Bank of Israel, Professor Stanley Fischer, to the Constituency Meeting of the IMF–World Bank, in Jerusalem
The Governor opened his address to the Constituency Meeting organized by the Bank of Israel with remarks on the global economic situation. Although the financial crisis seems to be in its final stages, he said, the recession in some countries has still not ended, and there is still much uncertainty about future developments in the global economy. Hence, every negative piece of information that reaches the markets has a pronounced effect on assessments regarding the continued exit from the recession in various countries around the world. In Europe the rescue plan announced by the European institutions and the IMF helped to stabilize the markets, and the global economy will learn important lessons about how it was formulated and how it will be implemented.
The fact that Asian countries suffered less of an impact from the crisis contributed to the continuation of the process whereby the center of gravity of the world economy is moving gradually towards the rapidly growing emerging markets. In addition, the influence of the G20, in which those economies are members, is increasing, unlike that of the G7.
The crisis does not portend the end of capitalism, although there were those who tended to think so. Nonetheless, it is clear today that the attention of economic policy makers around the world must focus on reforms in the financial system. Another important aspect is the extent of the fiscal expansion policy adopted by various countries, a policy that was doubtless a necessary reaction to the crisis, and the implications of that expansion for those countries' economic future and for their ability to service their sovereign debt. The events we have seen recently prove the validity of the policy pursued by the IMF in the last few years: countries that conduct correct fiscal policies in normal times are more prepared and less vulnerable when a crisis erupts. With regard to monetary policy, the main lesson to be learned from the crisis is that monetary policy can be effective even when the interest rate is reduced to very low levels, as the central bank can inject liquidity into the market against various types of financial instruments, and can act not only as lender of last resort, but also as market maker of last resort. For this reason and others, the Governor stated, he opposed the proposal heard recently in the IMF to increase the inflation target in inflation targeting countries.
The Governor then reviewed for the visitors from abroad recent events in Israel's economy, the factors that resulted in the relatively mild impact of the crisis on Israel, the policy reaction to the crisis, and the challenges facing Israel's economy in the coming years.