Bottom line? The reason Prime Minister Benjamin Netanyahu chose Jacob Frenkel for a return engagement as governor of the Bank of Israel, even if he had to push him into the job, was Frenkel's contacts. He was picked because he has entrée to everyone on the international economic scene – and everyone is ready to hear him out.
That's what makes Frenkel Frenkel since his last term as central bank governor ended in 2000. Since then he hasn't exactly opted for hands-on management positions. Instead, he has made the rounds at conferences, given lectures and opened doors. He has been a director – and foreign minister – at the companies that employed him: Merrill Lynch, AIG and now JPMorgan Chase.
These firms, which must have paid him loads, expected him to represent them at high-profile places like Davos and anywhere else power and money meet. And Frenkel does that as good as anyone. I've met with him a number of times at Davos and elsewhere; whether Frenkel was on stage or simply chiming in from the audience, he always showed he was present and had something to say. That's who he is. He loves exposure and seeing his picture in the paper.
Unlike outgoing Bank of Israel Governor Stanley Fischer, Frenkel loves to talk. Just a week ago, Fischer recounted sitting with Frenkel on a flight from London to New York. Frenkel offered him a sleeping pill, but Fischer replied that Frenkel should take the pill; that way Fischer would get some sleep, too.
Not all of Frenkel's comments have hit the mark. Wherever he was working at the time, Frenkel wasn't required to do too much economic research or look at new macroeconomic models. As chairman of financial firms and the Group of Thirty, a private nonprofit group of finance leaders, he has forged contacts with lots of top people.
But he has also embarrassed himself over the last 10 years or so. During the first half of the decade, he repeatedly talked about how wonderful the global economy was. Even when things began to sour in 2007, Frenkel stayed optimistic. In retrospect, he was way off the mark, and from 2009 he no longer appeared on Davos' main economic panel. His place was taken by Nouriel Roubini, whose prediction of the global economic crisis propelled him to stardom.
Over the past decade and a half, Frenkel hasn't been doing thorough economic research, hasn't been managing major operations and hasn't been engaged in major decision-making. At the banks where he worked, he didn't set policy or handle day-to-day operations. As a result, the criticism of him over the scandal and bailout at AIG is off the mark. On the other hand, he did open doors for his clients and employers and maintained a big presence with government leaders and global economic institutions.
He's no Stanley Fischer, but that doesn't mean he'll be a bad central bank governor. You can't deny his experience. He has already served as Bank of Israel governor for nine years. He has dealt with his share of tough crises and shown his ability to stand up to pressure; for example, from business leaders constantly pressing him to lower interest rates.
At 70 and with his public stature, Frenkel won't be dependent on anyone. If he wants to, he can withstand pressure from any politician, tycoon or banker. The big question is how much he's willing to go head-to-head on the issues.
He's not the type to make radical changes. He has no burning commitment to social justice and isn't the type to lose sleep over the undue economic power of 20 families in this country. He's taking over as a technocrat. He'll adjust monetary policy to meet the government's inflation targets and the prevailing sentiments at International Monetary Fund. He's conservative and will tamp down any sign of inflation. He'll also keep an eye on growth and employment. He'll only intervene in the currency market if the dollar collapses.
And he's expected to leave issues such as the cost of housing, income inequality and reform of banking and the capital market to others. Though he could surprise everyone, it's hard to believe that after working in banking for the past 10-plus years he'll address the concentration of power in that sector or cap top salaries.
Fischer's status as the Israeli economy's responsible adult has let the political leaders avoid responsibility for the economy, which isn't healthy. So maybe it's better that the next governor focus on monetary policy, as long as he's mindful of its impact on the common Israeli. The government would deal with the other economic issues and take full responsibility for its successes and failures.
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