As he completes an exceptionally difficult eight-year tour of duty during a
turbulent, indeed dangerous, worldwide financial crisis, Bank of Israel Gov.
Stanley Fischer has achieved a unique status. He won the respect – if not the
total assent – of those who had found his pro-market economic orientation
anathema, and in 2005 vigorously opposed his nomination as governor by
then-finance minister Binyamin Netanyahu.
While this alone is a
remarkable achievement, the list of Fischer’s many accomplishments is much
longer and of greater significance. It took President Shimon Peres, at a sendoff
party for Fischer, almost 30 minutes to praise the governor’s tough stand during
the 1984 economic stabilization plan, which Peres insisted tilted the scales in
favor of reform.
(Fischer rejoined that Peres’s account was a bit
exaggerated “but would do for an evening like this.”) There are several
important lessons to be gleaned from the wide admiration Fischer garnered
despite great odds, since central bankers, who habitually get in politicians’
way and often impose hardships on their fellow citizens, are rarely objects of
One lesson is that even in the treacherous field of Israeli
economic policy, bedeviled by excessive politicization and ruthless assertions
of power by politicians, tycoons, bureaucrats and their many henchmen, lawyers,
accountants, academicians and media persons, an officeholder of uncompromising
integrity can win crucial battles when he acts with courage and
Fischer proved his mettle taking on some powerful
“captains” of our economy (“The connected” as TheMarker’s Guy Rolnik calls
them), who fought tooth and nail to prevent him from dismissing one of their
own, Danny Dankner, after he exploited his position as chairman of the board of
Bank Hapoalim for personal gain.
Fischer, who demanded Dankner’s
resignation, was subject to severe attacks. Nevertheless, the governor managed
to teach the high and mighty the principle of accountability, so sorely lacking
in Israeli public life.
But integrity by itself could not win battles.
Fischer possesses a rare blend of other virtues: an extensive knowledge of
economics (he is the author of some of the field’s basic texts), and a nimble
intelligence that enables him to sort out complex issues. He also has the
unusual ability to listen to those with whom he disagrees, and the guts to make
decisions even on controversial and risky matters.
All this while walking
humbly with his fellow men.
IN A Jewish state, however, even such stellar
qualities have not exempted the governor from criticism.
First there was
the complaint that to help Israeli exporters, Fischer kept the shekel’s value
relatively low, lowering interest rates and buying so many dollars that Israel’s
reserves reached a whopping $70 billion. Savers were not able to get significant
returns except in real estate.
Consequently the price of housing
skyrocketed, making it beyond the reach of most Israelis, especially the
The fact that it takes an average 160 monthly salaries to purchase
a small apartment was a major reason for the eruption in the summer 2011 of the
social justice protests, which scared the government into making harmful
concessions to populist demands, creating a huge budget deficit. It also created
a dangerous real estate bubble that could burst at any time, forcing many
mortgage holders to default and endanger bank solvency.
“We were asked,”
the governor responded, “why we do not raise interest rates to lower [housing]
prices. The answer is simple: the added value from exports is 30 percent of GNP,
while from housing it is about 8%... [Had we preferred housing] we would have
caused a further rise in the shekel, lowered growth and raised unemployment, an
unacceptable outcome… Cheaper housing depends on the government releasing more
land and shortening the time – 13 years [!] – it takes to finish housing
projects,” explained Fischer.
Another charge was the failure to tackle
more forcefully problematic institutional structures and practices in Israel’s
financial markets, especially its banking sector.
Critics claimed that
the Bank of Israel could have done a lot more to curb the banks’ excesses, such
as preferential credit allocation to cronies on unreasonable terms and the
denial of credit to small and medium businesses. The credit crunch that ensued
badly curbed economic growth. It was a chief reason for the slow development of
the Negev and the Galilee, where most firms are small.
The central bank
could have also prevented the levying of extortionist interest rates and
inflated service charges from households. But it preferred to focus on
protecting banks’ stability, even at the cost of discouraging competition and
efficiency and sacrificing the greater economic good. For 60 years, not one new
bank was established in Israel, and plans to establish an Internet bank got
stuck in the bureaucratic mill for years.
Critics should take into
account that the Bank of Israel’s chief mandate is to ensure price stability –
namely fight inflation, a most essential objective that it has achieved with
great skill and under very difficult circumstances.
considering the sorry state of Israeli financial markets, the central bank had
to take seriously the imminent danger to bank stability. A bank failure,
everyone agrees, could have had disastrous consequences. Since most of the
information about the challenges the Bank of Israel faced in protecting bank
stability is not available, judgment about this issue should be
Also, the toxic political environment in which the Bank of
Israel has had to operate and the enormous efforts Fischer had to devote to the
task of making it functional and more efficient must not be forgotten.
Miraculously, Fischer managed to push a new central bank law that greatly
Another major lesson the “Fischer Model” offers could
revolutionize Israel- Diaspora relations and endow Israel with greater strength
in facing difficult challenges.
Fischer proved that a Jew who has climbed
to the top of his profession can remain an ardent Zionist without losing the
respect and even admiration of his colleagues; and that he can serve the Jewish
people and Israel in an outstanding manner even when most of his life was not
spent in Israel, and his professional achievements were not made
Fischer was willing to make great sacrifices in order to serve his
people. His example could hopefully encourage other Jews with outstanding
professional achievements to serve a tour of duty in Israel and enrich it with
their talent and accomplishments.
Already we have another example of such
devotion, in the willingness of Prof. Jacob Frenkel, a friend and colleague of
Fischer, to accept another tour of duty as the next governor of the central
Originally an Israeli, Frenkel, like Fischer, forged an outstanding
international career in academia and in top financial institutions. Like
Fischer, he made significant professional and material sacrifices to serve
Israel and the Jewish people. Since he must be aware that to enable the Israeli
economy to grow he will have to curb the extraordinary power held by a nexus of
politicians, oligarchs and their many enablers, who despoil the economy, he
showed great courage in accepting this position.
For their continued and
unflagging devotion to Israel, we owe Gov. Fischer, and his family – especially
his wife, Rhoda – who fervently participated in his arduous mission, deep
May they serve as an example to emulate for other gifted and
devoted Jews, who realize that we must not miss the miraculous and historic
chance given to the Jewish people to rebuild its home, where the unique and
extraordinary culture of Judaism can thrive again on its ancestral soil.
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