by Deng Yushan, Huang Heng

    JERUSALEM, Oct. 14 (Xinhua) -- The world economy has begun exiting the global financial crisis, but prudence should be leading the way, Bank of Israel Governor Stanley Fischer said in an exclusive interview with Xinhua on Wednesday.

    "The worst of the recession is definitely behind us. It reached its most difficult points probably in the first quarter this year. And since then many economies have begun to grow ... Almost every economy is returning to growth," noted the internationally renowned central banker.

    However, the former first deputy managing director of the International Monetary Fund (IMF), whose handling of the Israeli economy against the maelstrom earned wide commendation, cautioned that the world-wide return from contraction to growth "does not mean that the difficult time is over."

    "Unemployment will continue to rise in many countries. We do not yet know whether the recovery will be deeply based. In many countries, because the crisis was so difficult, there is a great deal of uncertainty about what comes next," he told Xinhua.

    Against such a capricious backdrop, countries should be prudent while steering their economies out of the fallout of what is widely termed the worst depression since the Great Depression, said Fischer, one of the most listened-to central bankers across the world.

    Taking the local economy for example, he said that while Israel's economic growth depends to a large extent on the world economy as export amounts to about 45 percent of the gross domestic product, "we are uncertain about what will happen in the global economy."

    "The moment looks good, but financial sectors in many countries are still in difficulty. So we have to wait and see whether the world economy improves as rapidly as we hope ... You just have to be very careful," said Fischer, who was also former vice president and chief economist of the World Bank and former vice chairman of Citigroup.

    Meanwhile, lessons should be learnt from the financial crisis and be implemented in the recovery process in order to prevent a repeat, stressed the governor, also a former professor at Massachusetts Institute of Technology and author of two popular economics textbooks, namely Macroeconomics and Lectures in Macroeconomics.

    Noting that Israel was relatively little affected by the crisis and would be one of the first countries out of it, Fischer explained that it was "because we started in a very good situation" with a strong banking system, a budget that was near balance, a surplus in the balance of payments and a relatively light burden of debt.

    "These are all things which are meant to be in a very good position to begin with. Those are things which should always be there. That is a primary lesson of this crisis. It's been a lesson of every crisis," he said.

    In addition to these "traditional lessons," the problems of the financial systems, particularly in the United States and West European countries, need to be dealt with, he added.

    "The banks have to be brought back to health. The supervisory systems have to be strengthened. There are the critical lessons which some countries may have troubles implementing," said Fischer.

    Commenting on the controversial rapid rebounding of bonuses in major banks and security firms, he said that "there will be changes in the systems," which will curb the incentives to take excessive risks.

    Yet the most significant change brought about by the financial crisis is that the global economic leadership shifted from the Group of Seven developed countries to the Group of 20 developed and developing countries, with the addition of China, India, Brazil and some other emerging economies, said Fischer, while stressing that the world economy needs leadership.

    "The G20 sets itself up as responsible for the global economy. This means that countries like China particularly, and obviously the United States, the European monetary union, have special responsibilities to make sure that the system works, that trade remains free, that the exchange rate system works, that trade is more or less balanced, that distortions in the international system get dealt with," he said.

    Among the newcomers in the cockpit, China has made unprecedented economic achievement since it opened up to the outside world in late 1970s and has become one of the leading economies in the world, said Fischer, expressing hope that China will take more responsibility and play a bigger role on the world stage.

    In retrospect of the many financial crises in recent memory, "you always know that something unexpected will happen. You know you have to make decisions quickly. You know you cannot wait around till you have perfect information. You have to make decisions on the basis of imperfect information. When you make them, you have to carry them out," he said.

Special Report:  Global Financial Crisis