Analysis / Fischer Jumps Into the Fire

Prof. Stanley Fischer will be sworn in by President Moshe Katsav today as the next governor of the Bank of Israel, at a ceremony to be attended by the prime minister, the finance minister and other senior officials.

Tomorrow, he will already hold a first working meeting at the Bank of Israel. He will discover that the bank is beset by problems regarding labor relations, wages and tension with the treasury. Before long, the bank workers' union will lash out at him. Next, he will field insults from all the MKs who want to make headlines, and then he will run afoul of all those who are attempting to curb the Bank of Israel's independence.

The transition from straight-laced Washington to the Jurassic cauldron of Israel's social, political and economic reality will not be easy for him. It is here that his chief asset - complete independence - will serve him in good stead. He owes nothing to anyone. Not to local politicians and not to international businessmen. You can't threaten to dismiss someone who has held senior positions in the world's leading financial institutions. He also enjoys the aura of a man who has rubbed elbows with counts and kings, who has led nations into economic recovery, and who forsook the fleshpots of America.

Fischer is a true lover of Israel. He feels he has paid his dues to the gentiles, and now it is Israel's turn. He gives Zionism as his explanation for coming.

Fischer considers the Bank of Israel's independence of supreme importance. "Countries where the central bank is more independent have less inflation and better growth," he says, because politicians look for short-term gains, where central banks have a view for long-term growth.

Many politicians will dislike his free market philosophy. Like Netanyahu, he believes in a market economy, a free rate of exchange, busting monopolies, reducing government intervention, low taxes, a low deficit and extremely low inflation. Fischer supports all of Netanyahu's reforms. He will tighten supervision of the banks to prevent crises, and will probably support the Bachar committee's recommendations, because he believes they will improve the stability of the banking system and of the capital market.

Fischer told Haaretz: "It once was thought that jobs could be created by increasing inflation, but this is impossible. The opposite is true. For stable long-term growth, price stability must first be achieved."

Fischer will advocate this as a chief goal for the Bank of Israel, leaving growth and employment for the government to deal with. Fisher will be just as extreme as Jacob Frenkel and David Klein were on monetary policy and interest rates. He will not hesitate to raise interest rates the moment there is the slightest sign of inflation.

Unlike Netanyahu, Fischer thinks the economic situation is closely tied to the political process. Recently he said, "Only the end of hostilities and a renewal of dialogue will create a change in the Israeli economy. The real solution for more growth in Israel is the end of war." But will he have the guts to say this as governor?