The second set of challenges I want to discuss are those confronting the economy and society outside the direct policy responsibility of the Bank of Israel, those that relate to the role of the Governor as the economic adviser to the government. Many of these issues are analyzed in the Bank of Israel’s Annual Report for 2009, which was published recently.
However, any hope about EMEs escaping unscathed could not be sustained after the failure of Lehman Brothers in September 2008 which triggered global deleveraging and heightened risk aversion. Eventually, EMEs were also adversely affected by the spillover effects: first through contraction in world trade and then from reversal in capital flows.