Fischer Won't Discount Post as Israel's Next Foreign Minister

Outgoing Bank of Israel Governor, who announced on Tuesday his resignation after eight years at the post, dispels rumors that he will be tapped as finance minister; also promotes Karnit Flug as his successor.

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Outgoing Governor of the Bank of Israel Stanley Fischer has no intentions of leaving Israel - or its public life - and at a news conference on Wednesday, he said just that.

“I will continue to be involved in the country’s public life. Israel is my second home and I’m not sure that it’s less than first,” Fischer, who announced Tuesday that he would resign from his post this coming June, said at the conference.

Fischer rejected any suggestion that he would accept the post of finance minister in the next government but did not say he would turn down a chance to lead the Foreign Ministry.

He also hinted at whom he would like to see as his successor at the central bank.

“I don’t intend to interfere in the appointment of the next Bank of Israel governor but the deputy governor is supposed to be someone who replaces the governor," said Fischer, who has held his post for eight years and will be stepping down 22 months before his contract was due to end. "I wouldn’t have chosen Karnit Flug for the post if I didn’t think she was appropriate.”

Flug was appointed deputy governor in July 2011. She began her career at the International Monetary Fund in 1984 and returned to Israel four years later to join the Bank of Israel’s research department, where she published papers on the labor market, balance of payments and macroeconomic policy. Before she was promoted to deputy governor, she headed the research department for 10 years. She has served on several government committees, most notably the Trajtenberg Committee that proposed a series of socio-economic reform in the wake of the 2011 social-justice protests.

Regarding the budget deficit, Fischer said, “We warned time after time in internal discussions about it until we were forced to go out and say it in public.” Israel closed last year with a deficit equal to 4.2% of gross domestic product, double the original forecast. It is grappling with a shortfall of some NIS 15 billion to NIS 20 billion in the 2013 budget, a matter which the next government will have to take up as its first order of business.

But he expressed confidence in the economic management of Prime Minister Benjamin Netanyahu, who was finance minster when Fischer was appointed BOI governor in 2005.

“The current prime minister took part in the decision to appoint me to the position. He is a person who understands the economy and was responsible for the stabilization and reforms in 2003, which are one of the reasons for the economy’s good performance," Fischer said. “Netanyahu understands the importance of addressing economic issues and he has the correct intellectual framework to do it.”

Regarding the rise in housing prices, which the central bank has tried to restrain by limiting access to mortgages, Fischer admitted there was a limit to what he or any other central bank governor could do alone. “The government will need to address this problem,” he said. In a reference to the need to build more homes, he added, “We can take care of the demand side. The government needs to take care of the supply side."

On the whole, Fischer said he was satisfied with the state of the Israeli economy. “I’m leaving the economy in good condition, albeit with serious challenges. We need a budget that will stabilize the economy,” he said.

Fischer did not cite any specific reasons for his decision to step down when he made the announcement on Tuesday. But in 2010, when he accepted a second term, he reportedly said he would not complete it. Those close to him have said he wants to spend more time with his family in the United States.

Fischer also made it clear that his decision to step down from the post has nothing to do with the recent Israeli elections.
“My resignation is personal, not political, so I decided to announce it after the elections and not before,” Fischer said.

Among other candidates who have been cited as possible successors are Manual Trajtenberg, who headed the National Economics Council in the Prime Minister’s office and the socio-economic reforms committee. Others include Avi Ben Bassat, a former treasury and Bank of Israel official, and Leo Lederman, now chief economist at Bank Hapoalim.

The Tel Aviv Stock Exchange greeted the news of Fischer’s exit with a sharp sell-off on Tuesday. But share prices rebounded later in the session, and at midday Wednesday were higher.

“The capital markets don’t like uncertainty, which will be the situation until they name a new governor,” said Yossi Fraiman, CEO of Prico Risk Management & Investments, on Tuesday. “The big fear of investors and economists is that behind his resignation are macro-economic reasons.”

But Fischer himself tried to discount the impact of his departure. “People get used to a change very quickly,” he said. “When Netanyahu resigned as finance minster [in 2005], the stock market fell but afterward it recovered.”

And Fischer believes he has done good work, which will make it easier for whomever is named as his successor.

“Some of the goals I set for myself were achieved,” Fischer said, pointing to the Bank of Israel Law, which among other things transferred power to set interest rates from the governor into the hands of a monetary council. “When we sought to pass the law, I explained that a group of people generally make better decisions than one person. The next governor will be in a better situation than I was when I entered the position.”

Stanley Fischer, former governor of the Bank of IsraelCredit: Tomer Appelbaum
Karnit Flug, Bank of Israel governor.Credit: Tomer Appelbaum

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