Karnit Flug .
(photo credit: MARC ISRAEL SELLEM)
Outgoing Bank of Israel Governor Dr. Karnit Flug will finish five years at the helm of Israel’s central financial institution on Tuesday.
Concluding a term defined by economic stability but political friction, Flug will not hand over the keys of the bank directly to successor Prof. Amir Yaron, whose appointment still requires formal government approval.
Flug, 62, is the only female governor to date. She has spent almost her entire career at the Bank of Israel, previously serving as deputy governor and director of the bank’s research department, a position she held for a decade prior to succeeding Stanley Fischer as acting governor in July 2013.
In July 2018, she informed Prime Minister Benjamin Netanyahu that she would not be standing as a candidate for an additional term in office – a decision largely expected following several clashes with Finance Minister Moshe Kahlon during her tenure.
After Flug sharply criticized Kahlon’s flagship affordable housing project in April, the finance minister hinted that he would look for other candidates to replace her.
Incumbent deputy governor Dr. Nadine Baudot-Trajtenberg will serve as head until Yaron’s appointment is rubber-stamped, although the new governor is expected to take the reins prior to the next Bank of Israel Monetary Committee’s interest rate discussions on November 26.
Last month, the committee concluded that the country’s inflation environment is “still not yet sufficiently entrenched” to consider raising the interest rate, which has been frozen at 0.1% since March 2015.
“I conclude my tenure as governor with a deep feeling of satisfaction, and great pride in many achievements in every field of operation of the bank,” Flug said at an event marking her departure last week. “To the designated governor Amir Yaron, I wish you great success in leading this special organization, its workers, dedicated civil servants, who work day in day out to achieve the vision of the bank, for the good of Israel’s economy and its citizens,” she added.
Yaron, a professor of banking and finance at The Wharton School of the University of Pennsylvania, will succeed Flug. The 54-year-old American-Israeli professor is a graduate of economics from Tel Aviv University and completed his PhD at the University of Chicago in 1994. Yaron has held his current position since July 2009.
Meitav Dash chief economist Alex Zabezhinsky told The Jerusalem Post that Yaron’s shift from academia to leading the Bank of Israel could present a significant challenge.
“There is a great difference from being a university professor to being a policymaker, to govern, to manage a big institute like the Bank of Israel with 800 workers, to face the media, to voice his opinion in the right way, and to advise the government. You have to be a very strong person for those conversations with politicians,” Zabezhinsky said.
“Maybe Yaron’s term will start with increasing interest rates very quickly but we simply don’t know his point of view. He has not yet spoken, and he has not yet written”, he said. Zabezhinsky added that it is possible to evaluate Flug’s five-year term as governor through the lens of the Bank of Israel’s two roles: as a policymaker and as a government adviser.
“Under Flug’s leadership, the bank had a successful term as a policy maker. But the major test usually comes at a time of crisis, such as in 2008, and there were no big crises during her term. I think the bank did react strongly and thoughtfully to the upsurge in Palestinian violence at the beginning of her term by decreasing interest rates to almost zero,” Zabezhinsky said.
“Regarding the bank’s role as a government adviser, unfortunately the government did not listen to the bank’s advice. We have seen some clashes between the governor and the Ministry of Finance over real estate and budget issues. From this perspective, there were no major results but it is not dependent on the governor. It is dependent on the government’s readiness to hear the bank’s professional advice,” Zabezhinsky added.
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