Analysis: The once and future BOI governor

Frenkel is a counter-weight to Lapid’s inexperience, but brings his own baggage to the table.

June 24, 2013 22:15
2 minute read.
Jacob Frenkel

Jacob Frenkel 370. (photo credit: Wikimedia Commons)

Economic analysts and market-watchers praised Prime Minister Binyamin Netanyahu and Finance Minister Yair Lapid’s choice of Jacob Frenkel to return as Bank of Israel governor.

Eldad Tamir, CEO of Tamir Investments, said bringing an old hand back into the role will make up for Lapid’s inexperience, and that the choice was right on (“Bingo!”).

Elise Brezis, head of the Aharon Meir Center for Banking and former BOI adviser, agreed.

“At a time when our finance minister is a beginner, it’s a great choice,” she said. The fact that Frenkel had liberalized Israel’s financial markets and showed ability to make bold decisions made the choice “good news for the Israeli economy.”

But she spotted a downside in his appointment as well – one which will not sit well with Israel’s social protest movement.

“The only negative point that can be brought against him is that the salaries of top players in the financial system and the inequality in Israel are not the kinds of things that will stand on his agenda,” she said.

Frenkel’s undertakings since his last stint at the bank may also come back to haunt him. Frenkel was the vice chairman of AIG International during the financial crisis, when the insurance giant nearly collapsed, only to be saved by a massive bailout from the US Treasury because it was “too big to fail.”

Frenkel tried to distance himself from the company, which he left in 2009, insinuating that his role there was merely superficial.

“The stain of him being an executive at AIG during its collapse is expected to come up again and again,” notes Pioneer Financial Planning’s Shmuel Ben- Arieh. But Ben-Arieh nonetheless surmises that “investors are likely to welcome the appointment of someone that has worked with the prime minister in the past, and considered to have contributed greatly to building the monetary system.”

Globes also brought to light an old State Comptroller’s Report that required Frenkel to refund the government NIS 238,000 after examining benefits he had received.

“Frenkel, with the help of a senior manager who was subordinate to him, arranged ‘special financial arrangements’ – in effect a large and possibly illegal financial package,” the newspaper wrote.

“Frenkel found a way to benefit from every possible linkage: salary terms and expenses linked to ministers, academic rights linked to university professors, and extraordinary salary terms that Bank of Israel executives receive in any case.

The result was hundreds of thousands of shekels in additional money that Frenkel took from the public’s coffers.”

The miniature scandals have the most potential to weigh Frenkel down before his confirmation. Though they should provide excellent ammunition for the opposition, once he is approved as governor there is little reason to think it will affect his performance in the position.

“It will be interesting to see with what policy steps Frenkel will take on the challenges facing Israel’s economy – the housing bubble, the economic slowdown, the appreciation of the shekel – and if he’ll continue down Fischer’s line,” trading company FXCM wrote in response to the nomination. “Nonetheless, despite the market’s familiarity with Frenkel, investors will wait until his first public statement and first policy meeting as governor to examine his current stance and his cooperation with Netanyahu and Lapid.”

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