Frenkel’s uphill struggle

Prime Minister Binyamin Netanyahu’s announcement that Jacob Frenkel would be returning to the post of Bank of Israel governor took many by surprise.

June 24, 2013 21:25
3 minute read.
Jacob Frenkel

Jacob Frenkel 370. (photo credit: Wikimedia Commons)

Prime Minister Binyamin Netanyahu’s announcement that Jacob Frenkel would be returning to the post of Bank of Israel governor took many by surprise.

Frenkel served as governor for nine years – between 1991 and 2000 – when Israel’s economy, rapidly making the transition from state domination to privatization and liberalization, was grappling with out-of-control inflation and was protected by currency controls.

Today, after decades of neo-liberal economic policies pursued by both Labor-led and Likud-led governments – including during Frenkel’s stint as governor – Frenkel returns to an economy facing altogether different challenges.

Painful gaps between the rich and the poor are exacerbated by an economy increasingly reliant on highly skilled labor in hi-tech and in finance combined with large populations – Arab and haredi – lacking higher education in large percentages and/or not fully integrated into the labor market.

Huge business concerns with holdings in both industry and finance dominate and sometimes monopolize sectors of the economy and prevent free competition.

Sloppy planning, lower-than-expected tax revenues and the belated passing of the budget have contributed to a fiscal deficit in danger of spiraling out of control unless deep cuts are made to government spending. And the need to maintain fiscal discipline comes at a time when, both in Israel and abroad (Brazil, Greece, Spain etc.), populist movements have mobilized against austerity measures and have been virulently antagonistic toward big business interests.

Under the circumstances, is Frenkel the man for the job? Frenkel definitely has the needed skills and experience. He is intimately familiar with the Bank of Israel, even in the post- 2010 Bank of Israel Law era in which interest-rate decisions are made in a transparent process by a seven-person committee and the central bank is empowered with more independence.

Like outgoing Gov. Stanley Fischer, Frenkel has impressive and diverse experience. He studied and taught at Chicago University, a bastion of neo-liberal economic thought where Nobel Prize laureate Milton Friedman was a professor for more than three decades.

Frenkel shares Netanyahu’s and Finance Minister Yair Lapid’s faith in free market forces, and there is little chance of ideological disagreements over policy issues.

Frenkel also served in public policy positions, first at the International Monetary Fund as director of research and later as governor of the Bank of Israel. For the past 13 years Frenkel has worked in the private sector, most recently at JPMorgan International.

Due to his status as an internationally renowned economist, Frenkel will bring to Israeli economic policies and strategies added value and legitimacy.

And Frenkel is a politician par excellence who knows how to influence economic policies and who is a superior communicator.

Like Netanyahu, Frenkel understands when it is necessary out of political expediency to compromise on neo-liberal policies such as tax cuts for the rich, welfare cuts, and strict fiscal discipline.

However, Frenkel will also face unique challenges as a public figure in an Israeli society that – in stark contrast to the 1990s when the Israeli-Palestinian conflict was at the forefront of public interest – is hypersensitive to economic issues.

Fischer found favor because he was perceived by many Israelis as an American Jew who, out of Zionism and a love for Israel, had given up a high-paying job at a major investment bank and a comfortable existence. Frenkel, in contrast, runs the risk of being seen as an Israeli who left the Jewish state to make a fortune and who is out of touch with the average Israeli’s struggle to make ends meet.

Not helping matters is the resurfacing of a 2002 report by former state comptroller Eliezer Goldberg that accused Frenkel of receiving unlawfully high payments for traveling expenses and for sick leave and vacation time during the time he served as governor of the Bank of Israel.

In the end, Frenkel returned the money, which amounted to over NIS 200,000. But the negative impression remains of a man enamored with the good life and luxuries, hardly the reputation needed by a governor whose job is to ensure that the government cuts corners, even if this means a lower standard of living for Israelis who rely on government services.

While Frenkel is eminently qualified to serve again as head of our central bank, he faces an uphill struggle as he makes the transition from Wall Street to public service and attempts to gain the trust of the wider Israeli public.

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