Israel's central bank chief saga: Every farce has a silver lining
It is very well possible that the convoluted and bitter path Karnit Flug had to walk to reach the governor's seat will actually contribute to her ability to stand up to pressure and various discomforts during the battles she will fight against the politicians.
Some 112 days after Stanley Fischer left his post, the saga of the appointment of the new governor of the Bank of Israel has finally reached its end with the announcement of the appointment of Dr. Karnit Flug. Flug was the first candidate for the job, with the encouragement and under the patronage of Fischer; but nonetheless, for many long months it appeared that Prime Minister Benjamin Netanyahu was doing all he could to avoid appointing her.
And now, 10 months after Fischer's resignation was announced; after two candidates - Jacob Frenkel and Leo Leiderman - quit the race under embarrassing or unknown circumstances; three candidates who reached the finish line - Zvi Eckstein, Mario Blejer and Victor Medina -- but did not succeed in crossing it; and a phone call to former U.S. Secretary of the Treasury Larry Summers; Netanyahu returned to the original candidate. The temptation to condemn him for the foot-dragging that went on for months is great, but we should praise him for not being embarrassed to change his decision, and after a long process and countless amount of criticism and ridicule, appointed the person who in his opinion was the most appropriate for the post at this time.
Karnit Flug's greatest advantage is her acquaintance with the Bank of Israel, its work and the issues on its agenda. Flug also knows the problems weighing down the Israeli economy. As the acting governor she purchased dollars and lowered the Bank of Israel's interest rate in an attempt to weaken the strong shekel, which is eating away at exporters’ profits.
Flug also knows very well the problem of housing prices, the high cost of living and the growing inequality in Israel. Flug must, as did her predecessor Fischer near the end of his term, make her voice heard on these matters, which are not in the monetary realm -- as do other central bank governors around the world. The governor of the Bank of Israel can and must act as the economic advisor to the cabinet, and in doing so influence its socioeconomic path.
Flug will need to forget the vote of no confidence that Netanyahu and Finance Minister Yair Lapid gave her, and work with them as a team. She will even need to fight them, like her predecessor, to preserve budgetary discipline and a reasonable deficit target. It is very well possible that the convoluted and bitter path she had to walk to reach the governor's seat will actually contribute to her ability to stand up to pressure and various discomforts during the battles she will fight against the politicians. But the fact that she actually is not a "personal appointment" or the preferred candidate of the prime minister or finance minister can contribute to consolidation of a critical viewpoint on her part. In any case, if Flug succeeds in having an influence on even just some of these matters then no one will remember what happened before her appointment, and not even the fact that she is the Bank of Israel’s first female governor.
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