Likely Pick for Israel Central Bank Chief Had Job in 1990s

Jacob Frenkel is top candidate, if he can clear his name in shoplifting affair

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Jacob Frenkel
Jacob Frenkel.
Meirav Arlosoroff
Meirav Arlosoroff

The 2010 Bank of Israel Law was the crowning achievement of its governor at the time, Stanley Fischer. The legislation, which enshrined the bank’s independence, specified who would qualify to sit on its monetary policy committee, the body that sets interest rates.

The standards are high and include that candidates have a master’s or doctoral degree in economics or business administration, and at least five years of experience in monetary policy, finance or macroeconomics.

It also includes a clause, inserted at the last minute as the legislation was winding its way through the Knesset, that opens admission to the committee to those with lesser qualifications, namely “demonstrable knowledge, expertise and professional experience of at least 10 years in monetary policy, finance or macroeconomics, so long as no more than one member is appointed under these terms.”

The jobs of governor and deputy governor, on the other hand, don’t have the same formal requirements. The law assumes that whatever standards apply to the committee would apply to the two top office holders of the central bank. It didn’t need to be spelled out.

Or maybe it did.

The contest for the post of governor hasn’t officially begun, but unofficially it’s underway and the contestants include the current governor, Karnit Flug; Zvi Zussman, who once headed the bank’s research division; the former treasury accountant general Michal Abadi-Boiangiu, and the man who holds the job now, Roni Hizkiyahu. The list also includes Zvi Eckstein, a former Bank of Israel deputy governor, and Eugene Kandel, who once chaired the National Economic Council in the Prime Minister’s Office.

There’s also an old-new name on the list – Jacob Frenkel, who was Bank of Israel governor in the 1990s. Other names are also being whispered into Prime Minister Benjamin Netanyahu’s ear.

Two of the rumored candidates -- Abadi-Boiangiu and Hizkiyahu – don’t have advanced degrees in economics and would only be able to be appointed to the monetary committee based on their professional experience – which is the minimal standard.

That raises the question about whether under the circumstances they should be candidates for Bank of Israel governor. The Bank of Israel Law doesn’t solve the problem of what can be considered sufficient experience in monetary policy, which is the governor’s main task.

Abadi-Boiangiu, who is now chairwomen of Psagot Investment House, Israel’s biggest financial-services company, has said she’s not interested in the job. The position of Hizkiyahu, who is Finance Minister Moshe Kahlon’s preferred choice, isn’t known. But no matter, reports have it that Netanyahu plans to decide himself who is the next governor.

Kandel has said he’s also not interested because he lacks experience in monetary policy making and has never managed a body as big as the central bank. “No politician has ever been elected because he prevented a financial crisis. But this is exactly what the Bank of Israel governor is to be tested on, and politicians simply don’t understand that,” Kandel has said cynically.

Kandel is one of Israel’s most respected and experienced academic economists, so his feeling that his lack of monetary experience makes him unqualified for the job of governor is telling.

As one of the other candidates said, on condition of anonymity: “The central bank governor needs expertise in monetary policy, in economics and also in financial management and in bank supervision. I believe any candidate has to have expertise in two of these areas at least.”

The list of those who meet the standard narrows down to Flug, Eckstein, Zussman and Frenkel.

Zussman suffers from being “like Flug, but less than Flug,” while Frenkel will have to clarify what happened in the duty free store in Hong Kong 12 years ago.

Frenkel had been Netanyahu’s first choice as central bank chief in 2013 when Fischer stepped down. But Frenkel, who is now hairman of JPMorgan Chase International, was forced to withdraw after a report that he had been briefly detained at Hong Kong airport in 2006 on suspicion of shoplifting. Frenkel said the incident was a misunderstanding.

The experience left a bad taste in Frenkel’s mouth, although associates say he has an official document from the Hong Kong police exonerating him. If so, he becomes an excellent candidate – his term in the 1990s is regarded as successful.

Thus, unless Netanyahu has another rabbit or two to pull out of his hat, it looks like the contest for governor will be decided in Hong Kong rather than Jerusalem.

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