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In the midst of the IMF conference in Washington in October 1999, then-finance minister Avraham Shochat suddenly disappeared.

His bewildered aides couldn't say where he had gone. Even his director-general, Avi Ben-Bassat, had no idea what the minister was up to.

The next day it transpired that although the accepted practice at events like the IMF conference is to rub shoulders with fellow ministers and central bankers of other nations, Shochat had elected to take time off to eat dinner with Shlomo Nehama, the chairman of Bank Hapoalim and Galia Maor, chief executive of Bank Leumi.

Nehama and Maor utilized the meal to tell Shochat why the Mutual Funds Law, being promoted at the time by Ben-Bassat and then-deputy Bank of Israel governor David Klein, as well as Antitrust Commissioner Dror Strum, was a bad thing.

Shochat never stated that he opposed the law. On the contrary, he said he intended to promote it. Yet the bottom line is that the bill wound up collecting dust on a treasury shelf. Nor did Shochat's successor, Silvan Shalom, ever declare opposition to the law. But somehow it remained in animated suspension throughout his stint.

So it was refreshing to hear a top treasury source state this week that the Finance Ministry does mean to pursue reform of the mutual funds system. A key part of the reform is splitting the funds away from the banks that currently run them. Netanyahu, the source said, will be announcing his position in two weeks.

Netanyahu has boasted that he manages to push through reforms never carried out in Israel before, and that analysts and fellow ministers worldwide applaud his accomplishments.

He may be laying it on a little thick, but he does deserve a lot of credit. The treasury is reforming the pension funds where all previous finance ministers had failed, in one of the most striking structural changes carried out in recent years.

One would think that the person behind the pension reform - which is to the ostensible detriment of hundreds of thousands of workers a man who managed to crush the economic power of the Histadrut labor federation by seizing control of its pension funds and a man who did not shy from tackling the labor federation's chairman Amir Peretz - could push through the Mutual Funds Law with a crook of the finger.

The law has been ready to go for four years now. A team of the best professionals from the treasury, the Bank of Israel and the Antitrust Authority have slaved over the plan, which describes exactly how to separate the mutuals from the banks. All Netanyahu has to do is restart the legislative process.

Picking on somebody its own size

The law is designed to enhance competitiveness in the capital market and reduce the over-concentration of power in the banking establishment. It would win the hearts and minds of the professional echelon across the board, and of the public too. One would think that passing the law would be a piece of cake for Israel's economic wizard.

But reality has a way of rearing its ugly head.

When passing the pension reform law, Netanyahu was dealing with hundreds of thousands of workers insured by the pension funds, but they had no real clout - not in parliament, not in the government, and not in the Likud Central Committee. History shows that the government usually wins battles with people like these.

The problem this time around is that the treasury is dealing with very strong groups indeed. These are groups that have connections with the Knesset and the parties, as well as personal relationships with ministers and heads of state.

In his battle to pry away the mutuals from the banks, Netanyahu faces a small group - 10 people at most - the owners and top managers of the large banks.

Nehama, the chairman of Israel's biggest bank, Hapoalim, leads the list. He was the man who mediated between Netanyahu and Prime Minister Ariel Sharon just four months ago regarding Netanyahu's appointment as finance minister. Another person at the top of the list is Leumi's Maor, who also knows her way around the corridors in Jerusalem, although she steps more softly.

History also shows that the tycoons and the bankers are consummate masters at blocking reforms. They have managed to delay and sidle around the Mutual Funds Law for a good 10 years now. They have attacked it directly in personal meetings with ministers, and working via lobbyists, they quashed it at the Knesset's Economics and Finance Committees. They also managed to market their claims to the press quite effectively.

If Netanyahu announces that he's acting to sever the mutuals from the banks, he can prove that the image he's so assiduously cultivating, the great reformer, has meat. He can prove that he can also pursue reforms that hurt the strongest people in the marketplace.

It will be an extremely interesting test for the first finance minister in Israel to ever be considered, so far, a success.