US embassy cable - 05TELAVIV3971

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 003971 
 
SIPDIS 
 
E.O. 12958: DECL: 06/22/2015 
TAGS: ECON, EFIN, IS, ECONOMY AND FINANCE, GOI INTERNAL 
SUBJECT: NEW BOI GOVERNOR FISCHER OPTIMISTIC ON ISRAELI 
ECONOMY, PRAISES NETANYAHU AND TEAM 
 
Classified By: ECONOMIC COUNSELOR WILLIAM WEINSTEIN FOR REASONS 1.4 (B, 
D) 
 
1.  (C) New BOI Governor Stanley Fischer expressed optimism 
about the Israeli economy in a courtesy call by the 
Ambassador.  Referring to the first-quarter slowdown in GDP 
growth, Fischer said he had to be a bit circumspect in his 
views.  He nonetheless felt the recent drop of unemployment 
to 9.1 percent in the first quarter was a significant 
indicator of positive economic trends, particularly when 
coupled with the fact that firms were generally having an 
increased problem finding employees.  He admitted that he 
wanted more data to flesh out his views, and was asking the 
BOI's Research Department to begin collecting data on such 
things as the amount of freight being carried on trucks, 
gasoline sales, etc. 
 
2.  (C) Fischer said one key reason for his longer-term 
optimism was Netanyahu's economic policies:  "Bibi is the 
most serious finance minister Israel has had.  He's doing a 
great job."  Fischer repeatedly referred to Netanyahu's 
commitment to a 1% real limit on expenditure growth (Note: 
not counting disengagement expenditures), stressing this was 
"very tight and impressive." This had led to a significant 
fall in government spending as a percent of GDP.  Although he 
felt the expenditure limit would have to "give way" at some 
point, it should be maintained "for the time being."  He 
noted "Bibi is pushing hard" for the implementation of his 
broader economic policies.  Fischer strongly supported 
Netanyahu's tax cut plan, particularly now that revenues were 
coming in significantly above projections.  Although he 
admitted he was concerned about Israel's high level of 
debt-GDP, Fischer did not feel Netanyahu should back off tax 
cuts.  Fischer also expressed support for Netanyahu's Finance 
Ministry team: "I have tremendous respect for the young 
people over there." 
 
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Fischer's Priorities 
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3.  (C) Fischer said he was just getting up to speed on the 
various aspects of his responsibilities.  He was committed to 
forward movement on the Bank of Israel law, and wanted to 
create two boards, one for monetary policy and one for Bank 
management.  The latter, which Fischer referred to as a 
"board of directors," would include individuals nominated 
both by the BOI and by the GOI, and would count among its 
responsibilities the establishment of Bank employee 
compensation levels.  (Note: The BOI has come under intense 
criticism by the Knesset for the purportedly high level of 
its employee compensation packages, a criticism the previous 
BOI governor was unable to combat effectively. End Note) 
Fischer said there was no question regarding maintaining the 
Bank's independence under any possible reform plan.  Fischer 
said he felt the BOI was doing a good job with its bank 
supervisory responsibilities: "It's certainly a better system 
than that in the U.S,. with its large number of bank 
supervisory bodies," he noted. 
 
4.  (C) On his role as economic advisor to the Prime 
Minister, Fischer said he was not pushing hard to get 
involved at this point, "Somebody needs to ask my advice 
first."  He was still in listening mode and said some of the 
best economic insights came from the unlikeliest places, 
"When I was here in 1985, Shimon Peres would bend my ear with 
his thinking on economic subjects.  Yet it was Peres back 
then who first said Israel's future is in high tech.  He's 
amazing."  Fischer did not express great interest in playing 
a leading role in social policy, although he said he 
supported the creation of a negative income tax system for 
poorer workers. 
 
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Comment 
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5.  (C) Fischer's modest appraisal of his role as economic 
advisor stands in contrast to that provided in a recent 
meeting by Finance Ministry DG Yossi Bachar. During the rough 
and tumble economic policy meetings that took place in the 
Prime Minister's bureau, Bachar said, "When Fischer speaks in 
his very quiet, slow way, everyone falls silent to hear what 
he has to say."  Bachar said he was waiting for when an 
impatient Israeli participant would finally interrupt Fischer 
and tell him to get to the point: "It hasn't happened yet, 
and somehow I don't expect it to happen soon." Bachar called 
Netanyahu and Fischer a "dream team" that worked together 
extremely well.  He was optimistic their good interpersonal 
relationship would lead to a broader and closer cooperation 
between the two institutions. 
 
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