Bankers, goes the adage, never die – they just lose interest. That is certainly
what happened to a bitter Jacob Frenkel, the world’s foremost Israeli-born
economist, who this week terminated his intriguing return to the Bank of
The saga that began with a bizarre throwback to the ’90s,
when Frenkel shepherded the economy to global stardom while serving as its
discontents’ punching bag, ended in a way that raised concerns over Israel’s
frequently abortive public appointments, as well as its central bank’s status as
a bastion of economic authority.
At 70, Frenkel had already been pretty
much everywhere an economist can hope to arrive, from prestigious professorships
and Wall Street chairmanships through nine years as the central banker who
completed Israel’s defeat of chronic inflation, globalized its financial markets
and turned a previously feeble shekel into one of the world’s strongest
Still, Frenkel’s appointment was attacked on professional,
procedural and ethical grounds, ultimately making him charge bitterly that he
had been “defamed” and “led to the stake.”
Professionally, some argued
that as a governor, he was a rigid monetarist who lacked social sensitivity, and
that as vice chairman of insurance giant AIG last decade, he was part of the
corporate culture that produced Wall Street’s financial meltdown of
Procedurally, his return to the bank 14 years after leaving it
would have required re-legislation, as the law limits the governorship to two
terms. Ethically, Frenkel’s opponents first exhumed an old story about
reimbursements he had to return after leaving the governorship, then brandished
a bizarre incident in a duty-free store in Hong Kong in 2007 involving momentary
suspicion of nonpayment for a garment bag.
Journalists who covered
Frenkel’s governorship, including this possible post, found the Hong Kong story
absurd and were convinced that the panel which approves senior appointments, the
Turkel Committee, would brush aside as nonsense the thought that a wealthy and
respected banker would shoplift.
Others, however, celebrated the incident
as if it had been Watergate, ultimately leading a beleaguered Frenkel to
announce his withdrawal in an acrimonious interview to Channel 2 TV, where he
all but said – ala Richard Nixon after losing the race for California’s
governorship – “You won’t have Frenkel to kick around anymore.”
THE ’90S, Frenkel’s independence and resolve made him the enemy of a plethora of
pressure groups and individuals who craved cheap money – from the labor unions,
the Israel Industrialists Association and the chambers of commerce to a pair of
finance ministers, one from Labor and the other from the Likud. Frenkel subdued
them all and emerged from the bank with flying colors, leaving behind a legacy
of economic impartiality that was later perfected by Stanley Fischer – whose
every word in the wake of any economic crisis, dispute or dilemma was accepted
as divine truth.
Whether any of Frenkel’s old enemies played a role in
the attack he faced remains to be seen, but the question now is what is the
public and economic damage of his reappointment’s spectacular
Frenkel’s departure comes on the heels of three other
high-profile appointments and candidacies that emerged in recent years, only to
be derailed amid much scandal. The least significant of these was then-Yisrael
Beytenu MK Estrina Tartman’s loss of her appointment as tourism minister in
2007, after it turned out she had never earned the MBA she claimed to hold.
Tartman’s misconduct was clear and the public lost little, as she brought no
special advantages to the position that she nearly assumed.
be said of Maj.-Gen. (res.) Yoav Galant, who in 2011 lost his appointment as IDF
chief of general staff.
A decorated naval commando who excelled in
numerous raids behind enemy lines, the introverted Galant, as OC Southern
Command, later led Operation Cast Lead’s attack on Hamas’s rocket
His appointment reflected Prime Minister Binyamin Netanyahu’s
and then-defense minister Ehud Barak’s belief that Galant would be the best
commander the IDF could have if it ordered to attack Iran.
That was in
September 2010. By February, Galant’s appointment was canceled in the wake of a
dispute in his community of Amikam, south of Haifa, over a 400-square-foot
pathway leading to his house that his neighbors claimed was public
In between the rise and fall of Galant’s command of the IDF,
the leading contender to be Israel’s top policeman also collapsed, after a
psychologist hired to run a project for the Israel Police accused that
candidate, Cmdr. Uri Bar-Lev, of sexual harassment; he subsequently canceled his
candidacy. A former head of Police Intelligence who excelled in the war on
organized crime, Bar-Lev had previously commanded the IDF’s elite undercover
unit Duvdevan, even after having previously lost a leg in the aftermath of a
secret operation with a different commando unit. Both Galant and Bar-Lev were
never indicted, let alone convicted, and have reason to feel they were
victimized by a public psychosis that turns public office candidates into fair
game. It is that public mindset to which Finance Minister Lapid alluded when he
decried Frenkel’s departure in harsh words, citing “an atmosphere of defamation”
and voicing concern that “we are not far from the day in which no one will want
to come near public life.”
Lapid’s concern, while genuine, is
exaggerated. Public office will remain coveted here, and the recent years’ spate
of failed candidacies will only inspire ambitious people to be more cautious as
they climb up, and those who hire them to be more probing.
saga’s public impact will therefore be positive, even if the price he paid
personally – like the prices paid by Galant and Bar-Lev – is arguably
Economically, however, the jury will now be out concerning the
impact of Frenkel’s abrupt departure.
NETANYAHU AND LAPID appointed
Frenkel because they wanted a governor as confident and authoritative as
Fischer, one who would be not only a topnotch economist but also a fearless
oracle who could stare a derelict banker in the eye and eject him from his
position, the way Fischer did to then-chairman of Bank Hapoalim Danny
This type of authority had been previously displayed by Frenkel,
when he stopped in their tracks Russian oligarchs who tried to penetrate Israeli
banks in the ’90s. His successor David Klein’s failure to confront the
politicians, who at one point imposed on him an ill-fated, 2-percent-interest
rate cut, underscored the need for those in the governor post to have a rare
combination of brains and guts.
That is why Netanyahu vetoed the
ostensibly natural candidacy of Fischer’s deputy, Karnit Flug, who announced her
resignation in response. A former IMF economist who earned her PhD. at Columbia
University, no one questioned her professional credentials.
her conservative economics, highlighted by her support for raising women’s
retirement age in line with rising life expectancy, is very much like the
Where Flug’s resume had a shortage is where
Frenkel’s has a surplus: charisma. And that is what Netanyahu, Lapid and anyone
who cares for the Israeli economy will expect from the new governor- designate,
62-year-old Leo Leiderman.
Currently Bank Hapoalim’s chief economist,
Leiderman completed his initial economic schooling – like Frenkel and Flug – at
the Hebrew University, before earning his PhD. at the University of Chicago
under the guidance of Nobel laureate Robert Lucas.
Born in Juan Peron’s
Argentina and raised in the hyper inflationary atmosphere Peron bequeathed,
Leiderman moved to Israel at 17 and became an internationally acclaimed expert
on inflation as well as exchange rates and central banking. His decade at the
Bank of Israel as head of the Research Department and senior adviser to Frenkel,
and his subsequent stints as head of research at Deutschebank and as a research
fellow at the IMF, leave no doubt concerning his credentials.
his possession of public charisma remains to be displayed, as none of his
previous positions demanded it.
Moreover, since he left the central bank,
the global economy has been jolted by financial meltdown and social protest.
Central banking as he helped practice it in the ’90s has since changed, with
thinking increasingly focused on financial stimulus and social
Fischer reshaped central banking by twice compromising the
monetarist orthodoxy with which he had been identified: First, he responded to
the shekel’s appreciation by buying dollars in quantities that in Frenkel’s era
would have constituted a blasphemous market-interference. Second, Fischer
defined not only price stability, but also growth and equality as parts of the
central bank’s aims.
It is this combined legacy of economic leadership,
financial resourcefulness, social concern and moral authority that Leiderman
will now be expected to uphold and also develop. Fortunately for him, his sudden
arrival at the heart of the public arena happened, by complete coincidence, the
morning after an austere budget’s passage, and just in between a spring Knesset
session that was dominated by economics, and a fall session that in all
likelihood will be dominated by diplomacy.
Considering the turmoil
Israeli central banking has just endured, this is a great way to start.