Jacob Frenkel to return as Bank of Israel governor

Frenkel credited with bringing down inflation, liberalizing financial markets during 2 terms as BoI governor from 1991-2000.

June 23, 2013 20:32
3 minute read.
Jacob Frenkel

Jacob Frenkel370 USE THIS ONE. (photo credit: Courtesy TAU)


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Prime Minister Binyamin Netanyahu and Finance Minister Yair Lapid have agreed to nominate Jacob Frenkel, who headed the Bank of Israel from 1991-2000, to return to the position and replace outgoing Gov. Stanley Fischer. Frenkel must be approved by a committee headed by Judge Yaakov Turkel, and then the full Israeli cabinet.

In his previous term as BoI governor, Frenkel – an Israel Prize winner who currently serves as chairman of JPMorgan International – was credited with bringing Israeli inflation down to levels of other Western economies and liberalizing its financial markets and foreign exchange regime.

Fischer himself has credited Frenkel’s achievements in the past.

“I make special mention of the then-governor Prof. Jacob Frenkel, [who] succeeded in pushing the changes through, and the economy is currently enjoying the fruits of that success, and it can certainly be stated that it provided the very important infrastructure for the excellent situation of the economy today,” Fischer said in a 2007 speech.

Fischer announced in January that he would step down from his position on June 30, after eight years as governor. Until Frenkel is approved, Fischer’s deputy, Karnit Flug, whose name had also been floated to fill the position, will serve as acting governor.

Yet the Bank of Israel Frenkel returns to will not be the same one he left. Fischer made a point to effect institutional change at the bank, making it more professional and bringing it in line with international central banking standards. In 2010, the Knesset passed a new Bank of Israel Law, which gave the bank more independence, installed a seven-person committee to make its primary interest rate decisions, and made those decisions more transparent.

How Frenkel’s views will have evolved since his last term, how he will interact with the new banking structures and what lessons he has drawn from the financial crisis may mean his new stint at BoI will be markedly different from his previous tenure.

But those changes aside, Israeli markets are likely to welcome the news that Frenkel, a known quantity who is just as much the “responsible adult” as Fischer, is coming back into the position.

“This is a surprising and positive development for the Israeli economy,” the Halman-Aldubi investment group said in response to the announcement. “It’s important to note that the problems the economy faces today are totally different than those Prof. Frenkel dealt with in his previous term. The biggest problem today is slowed growth. [Frenkel] was known in his time as having fought inflation, even at the expense of growth.”

In his new term, the investment house said, he would have to lead a more expansionary policy, or risk recession.

According to a Bloomberg analysis, Fischer was a master of surprise. “The Fischer-led Bank of Israel has surprised economists in about a quarter of its rate decisions, more often than any other Organization for Economic Cooperation and Development country for which comparable data is tracked by Bloomberg,” analysts wrote in January, saying Fischer’s outlook resembled the US Fed’s emphasis on growth and employment more than the European Central Bank’s focus on inflation.

But not everyone was happy with the choice.

MK Nachman Shai (Labor) said the decision proved that, despite Frenkel’s previous achievements, Netanyahu “is unable to think outside the box. What has been is what will be.”

Earlier in June, Netanyahu hinted that he was seeking to replace Fischer with a candidate residing abroad, saying at a Likud Beytenu faction meeting that his next nominee would “continue the impressive list of Frenkel and Fischer” – the two governors who had been plucked from international positions to fill the role.

Frenkel, of course, fully fits the criteria.

Last week, Globes reported that Netanyahu was trying to enlist Elhanan Helpman, a Harvard professor who was educated and had taught in Israel, and had also been sought out in 2005, when the post was ultimately offered to Fischer.

Aside from his time at the Bank of Israel and JPMorgan, Frenkel was also chairman of the board of the NGO Group of 30 (G30), vice chairman of insurance giant AIG, and chairman of Merrill Lynch International. Before his first BoI term, he studied at the Hebrew University and University of Chicago, and was director of research at the International Monetary Fund.

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