Taking Stock / Klein was right
Stanley Fischer smiled and said he'd rather not say. The time was January 2002, the venue the World Economic Forum in New York. The question he was ignoring was a direct one: Had he been offered the governorship of the Bank of Israel, and if so, what was his response.
We were surprised by his answer. We had thought he would deny being offered the job, and that he would not consider taking it in any case because he was an American citizen, not Israeli, and had just received a very lofty job to boot, as deputy chair of Citigroup, the world's largest bank.
We had thought he would say that David Klein was doing an excellent job. That was the first hint that the idea had been raised,and that he had not rejected it out of hand. He apparently saw the offer as flattering, even though he had already filled two of the highest economic positions in the world: He was first deputy managing director of the IMF from 1994 to 2001 and VP for economic development and chief economist at the World Bank from 1988 to 1990.
The initial reaction in Israeli economic circles to his appointment was astonishment. Had the powers that be gone mad, to choose an American with rudimentary Hebrew, a man of the wide world, for such a high, not to mention sensitive position - in Israel? In our slavish kowtowing to all things American, are we reduced to importing even central bankers from the U.S.?
But if we leave aside patriotic twinges and consider economics and globalization, the fact is that he brings several remarkable assets to the job.
l Stanley Fischer is one of the most respected macroeconomists in the world. At the IMF, he personally handled most of the economic crises in emerging markets worldwide, and a year ago was mentioned as a candidate to replace Alan Greenspan as chairman of the U.S. Federal Reserve Board itself. And for the last three years, Fischer has held the prestigious position of vice chairman of the world's biggest bank, Citigroup.
His appointment substantially upgrades the status of the Bank of Israel and of Israel's economy at the same time.
l Fischer is a league above the other candidates for the governorship, not only in terms of international status but as an economist as well. Dr. David Klein, Avi Ben-Bassat and Leo Leiderman are all serious, worthy economists, but they are not in his class.
The other candidates are even farther off the mark. Some are still basking on their records, but they are anachronisms, not relevant to today's economic reality. It is not their fault. Many have tremendous potential, but they chose to stay here, within the circles of the Israeli economy, in Israeli academia, they chose to manage local banks. With all due respect, Israel is not at the forefront of global finance or the study of economics.
l Fischer will be more independent than any of his predecessors at the Bank of Israel. He comes armed with an international reputation; he's already earned big money; he is beholden to no one in Israel - only to his own good name, which will be affected by his successes or failures at managing Israel's monetary and financial policy.
l He is a seasoned politician. At the IMF he fought some highly unpleasant battles when dealing with emerging markets in meltdown. Everywhere he went, be it Thailand, Argentina or Malaysia, he was attacked for being an outsider bringing foreign advice. He knows Israel's economy well, and its politics. He is probably aware of the abuse he will receive from embarrassed patriots outraged that an American should head Israel's central bank.
l Theoretically, David Klein should take Fischer's appointment as a slap on the face. The truth is that Klein is largely responsible for the situation in which the prime minister, the finance minister and many others see the appointment of someone like Fischer as reasonable. During the last 15 years Klein, and his predecessor Professor Jacob Frenkel, preached that even for the People of the Book, dwelling in Zion and surrounded by enemies, the laws of pure economics apply. Fischer's appointment is proof that they were right.
The governorship of the Bank of Israel is a job for a professional; economic management is a profession, and it is alike worldwide. There are formidable risks, though. Fischer began his interview in broken Hebrew, but shifted to English very quickly. The language barrier is a high one. He will face accusations that he is a "new immigrant who never served in the army" or paid Israeli taxes.
Fischer will have to maneuver in unfamiliar political arenas such as the militant Bank of Israel union, the Knesset Finance Committee, and myriad social organizations, to name but a few, taking arrows all the while. His opponents will harp on his foreignness. It is all true, too. The question is whether it is relevant. Looking at the people involved in Israeli economic management, whether in the Knesset, at the ministries or even on the governor of the Bank of Israel advisory committee, we have to agree that they pay taxes and go to the army reserves with us. But it is hard to say that we feel satisfied with their work or their professionalism. Perhaps it is time to bury another Israeli ethos and appoint a professional with international standing to the Bank of Israel, given that we have found a madman willing to take the job.