Summing up his eight years as Bank of Israel governor in a final press
conference on Tuesday, Stanley Fischer said that his successor Jacob Frenkel
will face a different reality and a different institution than the one he left
behind after his earlier stint as governor in the 1990s.
governor will encounter a different reality than the one he knew in his previous
term here, since he will have less freedom in making policy decisions,” Fischer
During his term, Fischer pushed through a new Bank of Israel Law
that devolved interest rate decisions to a monetary committee and installed an
administrative committee to make managerial decisions.
“It’s clear to me
that the world in which we operated in recent years is completely different from
that in which Jacob Frenkel worked in as governor,” he added.
last person who would say that the position of governor is not an important one,
but it is less important today than it was before the Bank of Israel Law was
implemented and the council and committee were established,” Fischer
The outgoing governor went as far as to complain that newspaper
headlines reporting on “Fischer’s interest rate decisions” were
“You should remember that decisions are made by the
committee, which the governor is, of course, part of,” he
Meanwhile, Fischer felt ill and was treated by Magen David Adom
paramedics at his home in Herzliya on Tuesday night.
he was in good condition and did not require hospitalization.
nomination hit a road bump on Tuesday when the Movement for Quality Government
in Israel watchdog NGO decried his reappointment as a breach of term
Attorney-General Yehuda Weinstein on Monday issued his opinion to
the prime minister that Frenkel’s return was acceptable because his first two terms (1991-2000) predated the 2010 law that established the limits.
The final decision, however, rests with President Shimon Peres, who will choose
whether to approve the nomination based on recommendations from a committee
headed by former Supreme Court justice Jacob Turkel.
In a letter to
Turkel and Peres, the NGO argued that term limits were intended, in part, to
limit political influences on the central bank. “Institutional mechanisms were
established by law to ensure the Bank of Israel’s independence; therefore the
new mechanisms should apply, even retroactively.”
The Turkel Committee
will also likely consider the repercussions of a scandal that followed Frenkel’s
previous term, in which the state comptroller forced him to return NIS 238,000
to the state, insinuating that he had improperly collected a lavish severance
upon his departure.
On that issue, Fischer came to Frenkel’s defense.
“I’ve known Jacob Frenkel for decades,” Fischer said. “I understand the Jacob
returned the money that the comptroller demanded he return, and the issue is
resolved. There is a committee that will have to check the issue, a committee I
greatly respect, and I suggest that we wait to see what it says.
believe that in several months, Jacob will stand before you at a press
conference as governor,” he continued, crediting Frenkel as an effective
governor whose reforms paved the way for the the bank’s successful navigation of
the world financial crisis.
Looking back over his eight years in office,
Fischer pointed to numerous economic achievements, though he did not shy away
from outlining failures and future challenges.
“The Israeli macro-economy
is an exemplary model for other economies,” the former World Bank chief
economist declared. Since 2005, the country’s debt-to-GDP ratio had dropped from
93.9 to 73.1, even as other countries saw their debts rise as a result of the
financial crisis. The employment rate increased from 67.9 percent to 74%, while
unemployment dropped from 9.6% to 5.9%. The country racked up higher reserves –
which Fischer said would act as safety buffers for the economy – and enacted
numerous reforms to strengthen its banking sector.
Yet several challenges
remain. The poverty rate in the country has hardly budged and the exchange rate
is stubbornly high. “People want a strong economy with a weak exchange rate, and
these two things typically do not go together,” he noted.
country’s deficit in line remained one of the biggest challenges for the
“I often say the economy has two doctors – the Bank of Israel
and the Ministry of Finance, and their cooperation is very
Fischer addressed difficulties in the housing market, where
prices remain high. “It’s clear that the interest rate affects the demand for
housing. We’ve been asked, if that’s the case, why don’t we raise the interest
rate to lower the prices? The answer is simple: The added value of exports is
28-30% of GDP, and the added value of construction is 8%. You don’t use the
interest rate to take care of housing prices at the expense of exports,” he
When asked to name areas in which he failed, Fischer said that a
wage deal reached with the Histadrut labor federation needed to be revised if
the Bank of Israel hoped to continue attracting qualified
Approved plans to upgrade the central bank’s computers and
modernize the building should be carried out swiftly, he added.
said that a system should be enacted to coordinate financial regulators, either
by consolidating them or through a financial stability coordinator that would
align their actions. “In every other economy there is a committee that
coordinates these regulators, and it’s very important that we establish such an
institution in Israel. Its importance is not felt in normal times, but primarily
at a time of crisis.”
Fischer’s final day in office will be June 30, at
which point his deputy, Karnit Flug, will take over as acting governor, pending
Before Frenkel’s nomination, several politicians
had expressed hope that Flug would be nominated as the first female Bank of
“Karnit Flug could have been an excellent governor,
though I’m sure Jacob will fill the position successfully,” Fischer said.