Now it’s official – signed, sealed and delivered.
Although she has been
holding the fort at the Bank of Israel ever since the June departure of former
governor Stanley Fischer, and had to go through the humiliation of months of
rejection while other candidates were considered, Dr. Karnit Flug was officially
sworn in as the Bank of Israel’s first female governor at a ceremony at the
President’s Residence in Jerusalem on Wednesday.
“Israel has great
challenges before it, but a bright future. We stand out in the world
economy. We cannot disconnect from it, but we can excel within it, and we are
doing so and will continue to do so,” Prime Minister Binyamin Netanyahu said,
highlighting the importance of low unemployment and strong economic
“Karnit, I want to welcome you this evening and wish upon us all
the good results we will bring about with our joint work,” Netanyahu
He and Finance Minister Yair Lapid had overlooked Flug twice
for the position, first nominating former governor Jacob Frenkel and then Bank
Hapoalim chief economist Leo Liederman, but both withdrew their
Lapid addressed the uncomfortable nomination process with a
bit of humor.
“The only advantage to the distorted way this nomination
took place – I told Karnit this – is that she does not owe us anything. Not me,
not the prime minister. And that’s good, because the state needs a bank governor
of its own, independent, absent of personal accounts and debts, indebted only to
what is good for the citizens of Israel.”
Just moments after praising
Flug’s independence, Lapid went on to opine that the shekel was too strong, the
banking sector not competitive enough, and the regulatory burden too
At the ceremony, Flug laid out her priorities as chief monetary
policy-maker and economic advisor. While keeping inflation in line would always
be the bank’s top priority, she said, its secondary objectives were to “support
the government’s economic policy and the stability of the financial
“First and foremost, we must find the ways to increase the
growth rate of productivity in the economy,” Flug said, a problem that would
require attracting more capital investment, improving business competition and
reducing the bureaucratic burden. Increasing the labor participation of Arabs
and ultra-Orthodox Jews was paramount, she said.
Taking a page from
Fischer’s playbook, Flug highlighted the social and economic importance of
“It is very important that the fruits of growth are
divided more equally by all parts of the population, so that they will support
the reduction of poverty and of inequality in income distribution.
want inclusive growth, which supports the cohesion between various population
groups, and within the groups themselves,” she said.
Turning to the cost
of living, Flug urged continued reforms to reduce market concentration, and
reiterated the call to the government to increase the supply of housing, which
she said was the only way to bring down prices, given the low interest rate
To maintain stability in the financial system, Flug called
for creating a Financial Stability Committee to institutionalize the
collaboration and sharing of information between the Finance Ministry, the Bank
of Israel and the Israel Securities Authority.
“Such a committee will
help to significantly reduce the probability of a threat to financial stability
in Israel’s economy in the future,” she said.
Flug also paid tribute to
her father, Noah Flug, an internationally noted economist and Holocaust survivor
who fought for the rights of all Holocaust survivors and the preservation of
Holocaust memory. Noah Flug died two years ago.
“Over the years, I heard
my mother [a pediatrician] speak straightforwardly to her little patients. From
my father, I learned to focus on a goal, to concentrate on what is truly
important, but also to be pragmatic and reach agreements, because there is no
need for unnecessary battles.
I hope to bring these principles with me to
the role of governor of the Bank of Israel,” Flug said, telling how her parents
survived the Holocaust and made aliya from Poland in 1958, when she was
President Shimon Peres told Flug he was pleased at the confidence
that had been placed in her experience, her abilities and her wisdom.
believe you will lead the Bank of Israel with the greatest responsibility,” he
Peres expressed confidence that under Flug the BoI would have a
monetary policy that will safeguard Israel’s stable economy and encourage it to
He also spoke of the need for social justice to be implemented
at home in tandem with global competition, so that new, well-paying jobs can be
created. He also emphasized the importance of having a policy that would enable
everyone to own a home.
Using the Hebrew adage for it all works out in
the end – sof tov hakol tov – Netanyahu said that it was a happy day for the BoI
that a person from its own ranks had been appointed governor.
commended Flug for the work she has done since taking over from Fischer, and
assured her that she was the right person with regard to meeting Israel’s
“We are in an era of knowledge, and we must nurture our potential
and capabilities,” he said, noting that Israel is a country with enormous
However, reality keeps changing, he observed, and the people
at the helm have to be able to provide the correct solutions in
Lapid injected another touch of humor with an anecdote recalling
that four-and- a-half hours after Flug was notified that she was the new
governor, she called him about a monetary problem.
He was surprised that
she was not out celebrating with family and friends, and told her
“She said she wasn’t the type, and I guess she isn’t.”