The banker guiding Israel's economy through the coronavirus pandemic

• Author: YAAKOV KATZ
• Published date: 27 September 2021
• Publication title: Jerusalem Post, The: Web Edition Articles (Israel)

For Yaron, it was a pivotal moment. Appointed just 14 months earlier as governor of the Bank of Israel, the Israeli-born Wharton School economist felt that something was about to happen. One evening, he gathered the bank's top staff around the conference table in his sleek and expansive office in Jerusalem to discuss what was happening thousands of miles away in Japan.

"We need to be prepared," the governor told the group.

cnxps.cmd.push(function () { cnxps({ playerId: '36af7c51-0caf-4741-9824-2c941fc6c17b' }).render('4c4d856e0e6f4e3d808bbc1715e132f6'); });

>

It was at that meeting that Yaron made a critical decision that would prove to be strategic in the 19 months since: he ordered the executives to create a new database that would give them the ability to see Israeli fiscal and economic data in real time.

It was a new way of thinking. Central banks usually think in three-month or six-month intervals, or in quarterlies: financial forecasts are not about what is going to happen next week, but what will happen in a few months. But when Yaron saw the events unfolding on board the Diamond Princess, he had an instinct that this was a new reality.

"It's not like I knew exactly what was going to happen, but I knew this could be a major disruption," he recalled in an interview with The Jerusalem Post. "I didn't know this would be of that order; I didn't know it would have such a long duration. But I could tell this [would be] a major disruption. We needed to think about it and make sure we refresh all of our emergency tools. And that's what we did."

The database would go on to serve Yaron, the bank and the government throughout the pandemic that continues to wreak havoc on economies and financial markets across the globe. It provided him with the ability to see how much money in Israel was being spent daily, how much was being charged to credit cards, and how much was moving through the banking system.

In a wide-ranging interview edited and condensed, Yaron talked about Israel's fiscal stability, the future of its economy, potential plans to raise taxes, and how he, the bank, and the Israeli economy made it through three lockdowns.

How is our economy today? It seems we've recovered nicely, and there's good projected growth for the upcoming year. On the other hand, we have a big deficit.

First of all, let me say the Israeli economy is vigorous. It showed its strength, its ability to come back from crisis, its agility, in terms of adapting to such a crisis. And recently, the numbers – basically the statistical agency even sort of went back and updated them. And we see even a stronger trend than we had before.

So Israel has a very strong potential, and we've seen it all throughout. And so in that sense, I'm very optimistic about the Israeli economy. So, that's No. 1.

No. 2, we know it's not uniform. We know that the hi-tech has been almost our Iron Dome economically, and all the surrounding advanced technologies. We need to bring more segments in society, whether it's Arab women, and advance them into the labor markets. More generally, in some of the more low-tech segments, be able to enhance them so they can basically be more productive in the next decade. But generally, we are seeing the economy doing well.

I think, obviously, we need to see what is happening with this fourth wave. And hopefully, we have to do everything in our power to avoid a complete lockdown. And I think, hopefully, with increased vaccination, we can indeed avoid that and see the numbers come down.

I like to use the Nike logo – the swoosh – as a metaphor. Is it smooth convergence toward where we would have been, or are we going to see continuous variants coming at us from different parts of the world every half a year, having to continuously deal with boosters?

That's going to change the outlook somewhat, in terms of the medium-run recovery. But even in the second case, we can tell right now that these other segments of the economy basically have adapted well. We know more about how to coexist with the COVID pandemic around us. And that means that probably the contractions that we've seen in 2020 can be avoided and we can indeed be on a path to growth.

Until now, we were sort of in a maintenance regime. We wanted to bridge – whether it's via credit, via economic support – and help bring households and businesses to the other side of this pandemic.

If on the other hand, we will be in these continuous waves for two, three or four years, at some point there'll be segments – perhaps like airlines or tourism – that will have to be restructured. And that is what is in the balance, once we are able to see where we are, scope the land after this fourth wave, and assess things.

And that also brings me to the difference between the situation right now, where there is...