Israel's Shaky Shekel

As if the fighting with the Palestinians were not enough, a tussle between Finance Minister Silvan Shalom and Central Bank Governor David Klein is further sapping confidence in the Israeli economy. Shalom has been pushing a bill to reduce Klein's power to set interest rates, leading to rumors that the governor will resign.

The uncertainty has contributed to a 14% slide of the shekel against the dollar this year. In an effort to stem the tide, Klein has sharply hiked rates twice in the past month by 2.5 percentage points. But that hasn't settled markets worried about ballooning budget deficits and inflation, which has hit 7%. Gross domestic product is expected to shrink by 1% in 2002 after a 0.6% fall in 2001.

Edited by Rose Brady

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