BoI Governor Stanley Fischer quitting after 8 years

Highly rated Bank of Israel governor Fischer doesn't give reason for exit; PM: Fischer helped Israel grow through global crisis.

Bank of Israel Governor Stanley Fischer 370 (photo credit: Sasson Tiram)
Bank of Israel Governor Stanley Fischer 370
(photo credit: Sasson Tiram)
Bank of Israel Gov. Stanley Fischer informed Prime Minister Binyamin Netanyahu on Tuesday that he will step down as Israel’s central banker on June 30, two years before the end of his second five-year term.
A former chief economist at the World Bank and MIT professor, Fischer, 69, is widely credited with guiding Israel’s economy steadily through difficult waters.
He said that he was grateful for the opportunity to lead the bank, “especially during a challenging period that included the global economic crisis, a complex geo-political reality, and domestic social issues.”
Fischer cited the passage of the Bank of Israel Law in 2010 as one of his major achievements, increasing the bank’s autonomy in setting monetary policy. The law watered down Fischer’s powers, turning over his monthly decisions on the key interest rate to a new seven-member Monetary Committee which he chairs, but which includes three outside academics.
“Research has shown that on average, group decisions are better than decisions taken by one person,” Fischer said at the time, noting that central banks in most advanced economies make decisions similarly.
Dr. Yaakov Sheinin, an economics professor at Tel Aviv University, said that in addition to reshaping the bank, Fischer gave the international community faith that Israel could keep its inflation in line with Western countries and exerted solid influence on Israel’s political class on fiscal matters.
“Things he said on the budget were actually taken into account,” Sheinin said.
Netanyahu, who was finance minister when Fischer was first appointed in 2005, credited him with playing a “major role” in the country’s economic growth and achievements.
“His experience, his wisdom and his international connections opened a door to the economies of the world and assisted the Israeli economy in reaching many achievements during a period of global economic crisis,” the prime minister said.
Finance Minister Yuval Steinitz said Fischer was not only an asset for the Israeli economy, but for Israel’s international image.
“I thank him especially for his important contribution to Israel’s acceptance into the OECD [Organization for Economic Cooperation and Development] and the public support in the critical period of the Sheshinski Committee’s activity, against the intense pressure that we had to deal with in Israel and the world,” Steinitz said.
In early 2011, Fischer came to the defense of the Sheshinski Committee’s recommendations on how Israel should tax its oil and gas companies.
The recommendations were ultimately passed as law.
Interior Minister Eli Yishai said that at the helm of Israel’s central bank, Fischer was “the envy of world’s nations.”
Members of the Labor Party, however, tied Fischer’s departure to the economic troubles facing the country, saying his decision to leave was a vote of no confidence in Netanyahu.
“Although Fischer and I often disagreed, we worked together on the Finance Committee on legislating the Bank of Israel Law, and I can attest that he was a brave governor, undeterred from taking unconventional steps,” Labor chairwoman Shelly Yacimovich said.
“Given that there is no fundamental ideological division between him and Netanyahu, his resignation sends an alarming message to the citizens of Israel. The governor is signaling that he is not ready to be part of the economic chaos and social hell that will prevail after the new government forms,” she said.
Tehila Yani, co-CEO of business information group BDI, said the announcement was problematic for different reasons.
“The timing of the stepping down announcement is problematic due to the budgetary breach, the freeze in the debtto- GDP improvement, the increasing influence of the continuing global crisis on Israel’s economic prosperity and the credit crunch following capital requirements in the banks,” she said.
Labor MK Isaac Herzog praised Fischer in his critique of Netanyahu, saying, “The citizens of Israel felt security and peace of mind from his position as the governor.
With his departure, a cloud of doubt will hover over the economic policy of Binyamin Netanyahu and the public trust will decrease even further.”
A source at the Bank of Israel, however, said that Fischer had never been expected to finish his second term. He made his decision to leave before the election, but waited to announce it until afterward, to avoid politicization.
According to the source, Fischer has not considered what he would do if the next government fails to pass a budget within 45 days of its installation, which would trigger another election.
“I don’t see in this a drama. It’s not that he’s escaping,” said Sheinin, who believes Fischer’s departure will not hurt the economy.
“I think he did great things, but the State of Israel will be able to find a replacement from among its economists.
The graveyards are full of irreplaceable people,” Sheinin said.
Fischer was current US Federal Reserve Chairman Ben S. Bernanke’s thesis adviser.
From 1988 to 1990, he was chief economist at the Washington- based World Bank. At the International Monetary Fund in the 1990s, he worked to resolve financial crises in Mexico, Russia and Southeast Asia.
Fischer was approached in early 2005 by then-prime minister Ariel Sharon and by then-finance minister Netanyahu, to succeed David Klein as central bank governor despite not being either an Israeli citizen or resident.
In 1960, Fischer spent six months at Kibbutz Ma’agan Michael near Hadera, where he combined learning Hebrew with manual labor.
In 2011, Fischer put himself forward as a candidate for the leadership of the IMF. He was disqualified for the post as he was over the organization’s age limit of 65, and the position went to France’s Christine Lagarde.
Two possible candidates to replace Fischer could be Avi Ben-Bassat, former finance ministry director-general, and Zvi Eckstein, ex-Bank of Israel deputy-governor, said Jonathan Katz, a Jerusalem-based economist for HSBC – banking and financial services.
Replacing Fischer would be “a major problem for Netanyahu as Stan has been a confidence-inspiring figure,” said Nobel economics laureate Robert Solow, a former teacher and colleague of Fischer’s at MIT. “Everyone knows with Fischer nothing stupid was going to happen economically.”
Yaniv Pagot, chief strategist at the Ramat Gan-based Ayalon Group, agreed.
“This isn’t good news and the markets are reacting accordingly,” he said. “Fischer was the foreign minister of Israel’s economy. Much depends on who will replace him and he leaves very big shoes to fill.”

Bloomberg contributed to this report.