Karnit Flug officially sworn in as Bank of Israel Governor

At ceremony, Flug reveals personal details, tells how her parents survived Holocaust, moved to Israel from Poland when she was 3.

Karnit Flug, swearing in ceremony 370 (photo credit: GPO- Amos Ben Gershom)
Karnit Flug, swearing in ceremony 370
(photo credit: GPO- Amos Ben Gershom)
Now it’s official – signed, sealed and delivered.
Although she has been holding the fort at the Bank of Israel ever since the June departure of former governor Stanley Fischer, and had to go through the humiliation of months of rejection while other candidates were considered, Dr. Karnit Flug was officially sworn in as the Bank of Israel’s first female governor at a ceremony at the President’s Residence in Jerusalem on Wednesday.
“Israel has great challenges before it, but a bright future. We stand out in the world economy. We cannot disconnect from it, but we can excel within it, and we are doing so and will continue to do so,” Prime Minister Binyamin Netanyahu said, highlighting the importance of low unemployment and strong economic growth.
“Karnit, I want to welcome you this evening and wish upon us all the good results we will bring about with our joint work,” Netanyahu continued.
He and Finance Minister Yair Lapid had overlooked Flug twice for the position, first nominating former governor Jacob Frenkel and then Bank Hapoalim chief economist Leo Liederman, but both withdrew their nominations.
Lapid addressed the uncomfortable nomination process with a bit of humor.
“The only advantage to the distorted way this nomination took place – I told Karnit this – is that she does not owe us anything. Not me, not the prime minister. And that’s good, because the state needs a bank governor of its own, independent, absent of personal accounts and debts, indebted only to what is good for the citizens of Israel.”
Just moments after praising Flug’s independence, Lapid went on to opine that the shekel was too strong, the banking sector not competitive enough, and the regulatory burden too onerous.
At the ceremony, Flug laid out her priorities as chief monetary policy-maker and economic advisor. While keeping inflation in line would always be the bank’s top priority, she said, its secondary objectives were to “support the government’s economic policy and the stability of the financial system.”
“First and foremost, we must find the ways to increase the growth rate of productivity in the economy,” Flug said, a problem that would require attracting more capital investment, improving business competition and reducing the bureaucratic burden. Increasing the labor participation of Arabs and ultra-Orthodox Jews was paramount, she said.
Taking a page from Fischer’s playbook, Flug highlighted the social and economic importance of reducing inequality.
“It is very important that the fruits of growth are divided more equally by all parts of the population, so that they will support the reduction of poverty and of inequality in income distribution.
We want inclusive growth, which supports the cohesion between various population groups, and within the groups themselves,” she said.
Turning to the cost of living, Flug urged continued reforms to reduce market concentration, and reiterated the call to the government to increase the supply of housing, which she said was the only way to bring down prices, given the low interest rate environment.
To maintain stability in the financial system, Flug called for creating a Financial Stability Committee to institutionalize the collaboration and sharing of information between the Finance Ministry, the Bank of Israel and the Israel Securities Authority.
“Such a committee will help to significantly reduce the probability of a threat to financial stability in Israel’s economy in the future,” she said.
Flug also paid tribute to her father, Noah Flug, an internationally noted economist and Holocaust survivor who fought for the rights of all Holocaust survivors and the preservation of Holocaust memory. Noah Flug died two years ago.
“Over the years, I heard my mother [a pediatrician] speak straightforwardly to her little patients. From my father, I learned to focus on a goal, to concentrate on what is truly important, but also to be pragmatic and reach agreements, because there is no need for unnecessary battles.
I hope to bring these principles with me to the role of governor of the Bank of Israel,” Flug said, telling how her parents survived the Holocaust and made aliya from Poland in 1958, when she was three.
President Shimon Peres told Flug he was pleased at the confidence that had been placed in her experience, her abilities and her wisdom.
“I believe you will lead the Bank of Israel with the greatest responsibility,” he added.
Peres expressed confidence that under Flug the BoI would have a monetary policy that will safeguard Israel’s stable economy and encourage it to flourish.
He also spoke of the need for social justice to be implemented at home in tandem with global competition, so that new, well-paying jobs can be created. He also emphasized the importance of having a policy that would enable everyone to own a home.
Using the Hebrew adage for it all works out in the end – sof tov hakol tov – Netanyahu said that it was a happy day for the BoI that a person from its own ranks had been appointed governor.
He commended Flug for the work she has done since taking over from Fischer, and assured her that she was the right person with regard to meeting Israel’s needs.
“We are in an era of knowledge, and we must nurture our potential and capabilities,” he said, noting that Israel is a country with enormous creativity.
However, reality keeps changing, he observed, and the people at the helm have to be able to provide the correct solutions in time.
Lapid injected another touch of humor with an anecdote recalling that four-and- a-half hours after Flug was notified that she was the new governor, she called him about a monetary problem.
He was surprised that she was not out celebrating with family and friends, and told her so.
“She said she wasn’t the type, and I guess she isn’t.”