Ex-central Banker Lauds Scorned Deputy, Obama’s Choice of Yellen at Fed

Acting governor Karnit Flug shows leadership, says Stanley Fischer.

WASHINGTON - In an interview on the sidelines of the annual meeting of the International Monetary Fund and the World Bank, Stanley Fischer, who wrapped up his tenure as governor of the Bank of Israel in June, praised the work of Deputy Governor Karnit Flug. She has been filling in for Fischer until a permanent successor is appointed.

Fischer served eight years at the helm of Israel's central bank. Flug was Fischer's preferred choice to succeed him in the job, but she was passed over by Prime Minister Benjamin Netanyahu as a nominee.

"Karnit Flug does excellent work in every field in which she works," Fischer said. Referring to the decision by the central bank's monetary committee to lower the interest rate to 1% for October, Fischer said Flug showed leadership in backing the move, which he said was a difficult decision that was supported by three committee votes and opposed by two members who wished to leave the rate unchanged at 1.25%.

"You have to understand that the Bank of Israel is a different bank than it was 10 years ago,” he said. “It's a new bank. You don't run it alone, but rather with other people who don't always agree with you. Karnit is a success in doing that."

Flug is also in Washington for the IMF meeting and, together with Finance Minister Yair Lapid, met with the outgoing chairman of the U.S. Federal Reserve, Ben Bernanke. She also met with President Barack Obama's choice as his successor, Janet Yellen, as well as the heads of other central banks. Fischer said Yellen was an excellent choice.

Fischer moved from Israel to New York three months ago and is currently working as a lecturer and consultant. He is weighing the possibility of taking on another regular position, but has not yet found the right post. He has traded a jogging route on the Herzliya coast for a route in Central Park, but on more than one occasion, when referring to the Bank of Israel in lectures, he has identified it as his place of employment, then corrected himself.

He continues to follow economic developments here, and noted with pleasure that state revenues were coming in higher than budgeted. But he also expressed the hope that a more lax approach to budgetary restraint not be applied too soon. "I hope they don't decide to lower tax rates," Fischer said, "because the state has enough budgetary challenges at the moment - in the defense field, too, but not only [defense]."

Asked what core issues the Israeli economy must address, he cited the subjects of education, inequality and the integration of Israeli Arabs and Haredim into the workforce. And asked about the brain drain from Israel, Fischer said it was difficult for a small country to retain people in every field.

Israel has managed to retain talented people, he said, but there has been an erosion in the relative compensation that PhDs and researchers get in Israel. On the other hand, he cited the Interdisciplinary Center in Herzliya as an example of a place that was competing with universities abroad for teaching staff.

Michal Fattal