Prime Minister Binyamin Netanyahu and Finance Minister Yair Lapid have agreed to
nominate Jacob Frenkel, who headed the Bank of Israel from 1991-2000, to return
to the position and replace outgoing Gov. Stanley Fischer. Frenkel must be
approved by a committee headed by Judge Yaakov Turkel, and then the full Israeli
In his previous term as BoI governor, Frenkel – an Israel Prize winner who
currently serves as chairman of JPMorgan International – was credited with
bringing Israeli inflation down to levels of other Western economies and
liberalizing its financial markets and foreign exchange regime.
himself has credited Frenkel’s achievements in the past.
“I make special mention of the
then-governor Prof. Jacob Frenkel, [who] succeeded in pushing the changes
through, and the economy is currently enjoying the fruits of that success, and
it can certainly be stated that it provided the very important infrastructure
for the excellent situation of the economy today,” Fischer said in a 2007
Fischer announced in January that he would step down from his
position on June 30, after eight years as governor. Until Frenkel is approved,
Fischer’s deputy, Karnit Flug, whose name had also been floated to fill the
position, will serve as acting governor.
Yet the Bank of Israel Frenkel
returns to will not be the same one he left. Fischer made a point to effect
institutional change at the bank, making it more professional and bringing it in
line with international central banking standards. In 2010, the Knesset passed a
new Bank of Israel Law, which gave the bank more independence, installed a
seven-person committee to make its primary interest rate decisions, and made
those decisions more transparent.
How Frenkel’s views will have evolved
since his last term, how he will interact with the new banking structures and
what lessons he has drawn from the financial crisis may mean his new stint at
BoI will be markedly different from his previous tenure.
changes aside, Israeli markets are likely to welcome the news that Frenkel, a
known quantity who is just as much the “responsible adult” as Fischer, is coming
back into the position.
“This is a surprising and positive development
for the Israeli economy,” the Halman-Aldubi investment group said in response to
the announcement. “It’s important to note that the problems the economy faces
today are totally different than those Prof. Frenkel dealt with in his previous
term. The biggest problem today is slowed growth. [Frenkel] was known in
his time as having fought inflation, even at the expense of growth.”
his new term, the investment house said, he would have to lead a more
expansionary policy, or risk recession.
According to a Bloomberg
analysis, Fischer was a master of surprise. “The Fischer-led Bank of Israel has
surprised economists in about a quarter of its rate decisions, more often than
any other Organization for Economic Cooperation and Development country for
which comparable data is tracked by Bloomberg,” analysts wrote in January,
saying Fischer’s outlook resembled the US Fed’s emphasis on growth and
employment more than the European Central Bank’s focus on inflation.
not everyone was happy with the choice.
MK Nachman Shai (Labor) said the
decision proved that, despite Frenkel’s previous achievements, Netanyahu “is
unable to think outside the box. What has been is what will be.”
in June, Netanyahu hinted that he was seeking to replace Fischer with a
candidate residing abroad, saying at a Likud Beytenu faction meeting that his
next nominee would “continue the impressive list of Frenkel and Fischer” – the
two governors who had been plucked from international positions to fill the
Frenkel, of course, fully fits the criteria.
Globes reported that Netanyahu was trying to enlist Elhanan Helpman, a Harvard
professor who was educated and had taught in Israel, and had also been sought
out in 2005, when the post was ultimately offered to Fischer.
his time at the Bank of Israel and JPMorgan, Frenkel was also chairman of the
board of the NGO Group of 30 (G30), vice chairman of insurance giant AIG, and
chairman of Merrill Lynch International. Before his first BoI term, he studied
at the Hebrew University and University of Chicago, and was director of research
at the International Monetary Fund.
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