Middle Israel: You won’t have Frenkel to kick around anymore

The fourth derailment of a senior appointment in 6 years challenges the next Bank of Israel governor to wield two iconic predecessors’ charisma and authority.

Jacob Frenkel370 USE THIS ONE (photo credit: Courtesy TAU)
Jacob Frenkel370 USE THIS ONE
(photo credit: Courtesy TAU)
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 Israel’s helm.
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 currencies.
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 2008.
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.”
BACK IN 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 nosedive.
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.
That cannot 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 launchers.
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 property.
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.
The Frenkel 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 unfair.
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 Dankner.
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.
Similarly, her conservative economics, highlighted by her support for raising women’s retirement age in line with rising life expectancy, is very much like the current government’s.
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.
However, 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 discontent.
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.