ByÂ Shmuel Katz
If you have children living here in Israel, or perhaps in yeshiva or seminary or in the army or sheirut leumi, you are already aware of how incredibly strong the Israeli economy has been lately. This has actually been the case almost since we arrived back in 2006. Sparked by the policies of then-finance minister Binyamin Netanyahu, and partially driven by an extended, incredibly successful hi-tech boom, the Israeli economy is a powerhouse.
When we arrived, the U.S. dollar would buy about 4.3 shekels. That rate dropped pretty quickly to about four shekels in the first few months and we fully expected things to stay in that range. Then came the financial crisis in the U.S. With the U.S. economy reeling from the various bailouts and financial failures, the dollar dropped to something like 3.2 shekels or so. It was painful.
Our savings and the value of any money we were going to bring to the country had much less buying power than we had planned. Friends who had U.S.-based jobs or salaries saw a dramatic loss in their income. And the yeshiva I worked at was faced with a significant shortfall in tuition collections because our expenses, which were shekel-based (although my personal salary wasn’t), did not change, while our tuition revenues fell significantly.
That yeshiva switched to a shekel-based tuition at the time because of the currency losses. While it led to an uncertainty regarding the actual cost of tuition, it helped protect the yeshiva from the risk of a fluctuating currency. I’m pretty sure that they continue to charge tuition in shekels–which they are probably grateful about in the last year or so.
After a couple of years of weak performance by the dollar, the Bank of Israel (BOI) began to purchase huge amounts of foreign currency. This was done both to weaken the shekel in order to make Israeli products more competitive in world markets and also to conform to international banking requirements that the government hold specific levels of foreign currency.
The shekel-to-dollar rate slowly made its way to approximately 4 shekels to the dollar and even passed it at one point. But it eventually settled (with a couple of dips toward 3.5 and subsequent recoveries) and generally hovered around 3.8, a state that lasted for several years. Until last year.
In the last few years, having amassed much more foreign currency than they originally intended to, the BOI cut way back on its purchasing of currency. No longer held in check by the bank’s intervention, the shekel made slow incremental growth, gaining something like 8% in 2017, and just short of another 2% in the first month of 2018 so far. Currency speculators have also joined in, helping drive the shekel’s strength. The dollar fell back below the 3.5 level and is currently somewhere around 3.3, which is not good for us.
Why? Lots of reasons.
First off, Israeli companies have a hard time being competitive in the marketplace when their products cost more to purchase. They either have to lower their pricing in order to keep customers (and thus lose revenue or profit) or lose sales. Either way, it’s a loss to them.
The tourism industry also takes a beating. All those tourists need to be able to afford their travel. When the costs of the hotel, car rental, guide, tour, entrance fees, etc., effectively go up because it takes more dollars to pay for them, many tourists change their destinations or shorten their trip to save some money.
Foreign expats also see a big drop in incomes. We’re a two-income family; Goldie’s salary is tied to the U.S. dollar. We have seen a huge drop in her income over the last year, even though she’s working the same job and similar hours as she’s done for the last few years. All those people relying on foreign jobs or foreign customers are putting less money in their pockets than they used to.
But it isn’t just them. There’s trickledown, too. The restaurants and other similar businesses that see fewer tourists, and/or locals who have less income and need to save money, have less money to use for salaries and other expenses and have to cut staff. There are the exporters who see sales drop and make staffing cuts, etc. All these people making less money are also spending less money.
While it is hard to predict, many evaluators are predicting that things should recover eventually. Either BOI will intervene or the economy will slip at some point as the negative effects of the strong currency take their toll.
How does this affect you? Well, if you come here on vacation it’ll be a bit pricier to lodge and tour here. Same goes for sending a kid for a year (or 2 or 100). And your other family members who may live here will probably be having a harder time of it.
But, all in all, we still get one day of yom tov and live a short drive from the Kotel. And that is priceless.
Shmuel Katz, his wife Goldie, and their six children made aliyah in July 2006. Before making aliyah, Shmuel was the executive director of the Yeshiva of South Shore in Hewlett. You can contact him at firstname.lastname@example.org.