Aaron Katsman 58.
(photo credit: Courtesy)
Finally the incessant play by play of the post-election coalition negotiations
was bumped from the headlines as Bank of Israel Governor Stanley Fischer
surprised some with the announcement of his resignation. While Fischer is
getting accolades from all corners of the political spectrum, readers of this
column know that I have been quite critical of him at times.
critical of his confirmation process when our Knesset members thought it was
more important to grill him over his Hebrew-language skills than ask him
questions about his policies that directly led to the Asian financial crisis of
the 1990s. This was of critical importance because his arrival was immediately
following Israel’s near bankruptcy a la Argentina. To be fair, the questioning
process was not his fault.
What is his fault has been his constant
intervention in currency markets to weaken the shekel. For some reason central
bankers the world over seem to believe that they are stronger than market
forces, and they try and manipulate their currencies in one direction or
another. They almost always fail, and Fischer was no exception.
currency means that investors are giving the local economy a thumbs up. It
speaks to the strength of the country as a whole. Trying to prop up one sector
of the economy at the expense of other sectors is not a central banker’s job.
Government officials, whether elected or not, should not be in the game of
picking winners and losers.
In addition, his intervention in the housing
crisis led to a deeper crisis and didn’t solve the problem. Everyone is crying
that young couples can’t afford to buy an apartment.
Well they certainly
can’t if they need to put down a lot more money thanks to Fischer’s forcing the
banks to require larger down payments.
To Fischer’s credit he garnered
worldwide respect, which certainly helped Israel’s credit rating and upgrade to
become a member of the OECD. He also helped bring more transparency to the
central bank. According to Globes, Fischer summarized his impact on the Bank of
Israel by saying: “The next governor will be in a better position than I was
when I arrived at the Bank of Israel. We have a Monetary Council with three
external professors. This results in better, more established and higher quality
monetary policy. It supports the next governor and what he does and will also
prevent him from making big mistakes.”
What can we expect next? While no
one knows who will replace Fischer, some pundits have Prof. Manuel Trajtenberg,
of Trajtenberg Committee fame, as the leading candidate. Look out. His
recommendations directly got us in the deficit mess that we are
Remember free education from three years old is not free! Maybe Prime
Minister Binyamin Netanyahu can pull another rabbit out of the hat and bring in
another respected global economist to lead the central bank, just like he did
when he was finance minister by bringing in Fischer.
The question for
investors is whether any of this change will have an impact on the local stock
market. My hunch is no. In fact, in trading since the announcement, the shekel
remained firm and the Tel Aviv Stock Exchange dropped a bit, but that can be
attributed to the security situation in the North.
Of greater importance
to the market is who will be chosen to be the finance minister and what kind of
policies will be implemented to close the budget gap. Will we see higher taxes
that are sure to stifle growth? Will we see a continued running of the printing
press and a expanded deficit? Will we see lower taxes and pro-growth policies
that will actually enlarge the governments haul from tax revenues, lower
unemployment and again make Israel the economic envy of the world? The stock
market is waiting for answers to these questions, and only then will investors
have a clearer outlook on how to position their local
Regardless of my opinion of his policies, I still think
Fischer deserves a big thank you for uprooting his life to come to Israel and
contribute to our country. Thank you.
Katsman is a licensed financial adviser in Israel and the United States who
helps people with US investment accounts.
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