Prime Minister Binyamin Netanyahu’s announcement that Jacob Frenkel would be
returning to the post of Bank of Israel governor took many by
Frenkel served as governor for nine years – between 1991 and
2000 – when Israel’s economy, rapidly making the transition from state
domination to privatization and liberalization, was grappling with
out-of-control inflation and was protected by currency controls.
after decades of neo-liberal economic policies pursued by both Labor-led and
Likud-led governments – including during Frenkel’s stint as governor – Frenkel
returns to an economy facing altogether different challenges.
gaps between the rich and the poor are exacerbated by an economy increasingly
reliant on highly skilled labor in hi-tech and in finance combined with large
populations – Arab and haredi – lacking higher education in large percentages
and/or not fully integrated into the labor market.
Huge business concerns
with holdings in both industry and finance dominate and sometimes monopolize
sectors of the economy and prevent free competition.
lower-than-expected tax revenues and the belated passing of the budget have
contributed to a fiscal deficit in danger of spiraling out of control unless
deep cuts are made to government spending. And the need to maintain fiscal
discipline comes at a time when, both in Israel and abroad (Brazil, Greece,
Spain etc.), populist movements have mobilized against austerity measures and
have been virulently antagonistic toward big business interests.
the circumstances, is Frenkel the man for the job? Frenkel definitely has the
needed skills and experience. He is intimately familiar with the Bank of Israel,
even in the post- 2010 Bank of Israel Law era in which interest-rate decisions
are made in a transparent process by a seven-person committee and the central
bank is empowered with more independence.
Like outgoing Gov. Stanley
Fischer, Frenkel has impressive and diverse experience. He studied and taught at
Chicago University, a bastion of neo-liberal economic thought where Nobel Prize
laureate Milton Friedman was a professor for more than three
Frenkel shares Netanyahu’s and Finance Minister Yair Lapid’s
faith in free market forces, and there is little chance of ideological
disagreements over policy issues.
Frenkel also served in public policy
positions, first at the International Monetary Fund as director of research and
later as governor of the Bank of Israel. For the past 13 years Frenkel has
worked in the private sector, most recently at JPMorgan
Due to his status as an internationally renowned
economist, Frenkel will bring to Israeli economic policies and strategies added
value and legitimacy.
And Frenkel is a politician par excellence who
knows how to influence economic policies and who is a superior
Like Netanyahu, Frenkel understands when it is necessary
out of political expediency to compromise on neo-liberal policies such as tax
cuts for the rich, welfare cuts, and strict fiscal discipline.
Frenkel will also face unique challenges as a public figure in an Israeli
society that – in stark contrast to the 1990s when the Israeli-Palestinian
conflict was at the forefront of public interest – is hypersensitive to economic
Fischer found favor because he was perceived by many Israelis as
an American Jew who, out of Zionism and a love for Israel, had given up a
high-paying job at a major investment bank and a comfortable existence. Frenkel,
in contrast, runs the risk of being seen as an Israeli who left the Jewish state
to make a fortune and who is out of touch with the average Israeli’s struggle to
make ends meet.
Not helping matters is the resurfacing of a 2002 report
by former state comptroller Eliezer Goldberg that accused Frenkel of receiving
unlawfully high payments for traveling expenses and for sick leave and vacation
time during the time he served as governor of the Bank of Israel.
end, Frenkel returned the money, which amounted to over NIS 200,000. But the
negative impression remains of a man enamored with the good life and luxuries,
hardly the reputation needed by a governor whose job is to ensure that the
government cuts corners, even if this means a lower standard of living for
Israelis who rely on government services.
While Frenkel is eminently
qualified to serve again as head of our central bank, he faces an uphill
struggle as he makes the transition from Wall Street to public service and
attempts to gain the trust of the wider Israeli public.