Process to Pick Next Chief of Israel's Central Bank Gets Off on Wrong Foot

Top candidate Mario Blejer was to meet with Netanyahu and Kahlon on Monday ahead of Nov. 13 deadline to fill post

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Mario Blejer, 2014.
Mario Blejer, 2014.Credit: Bloomberg

In an echo of the farcical process of picking the Bank of Israel governor in 2013, Benjamin Netanyahu and Moshe Kahlon canceled at the last minute a meeting with the leading candidate this time, Mario Blejer.

Reuters reported that spokesmen for the prime minister and the finance minister did not explain the cancellation. The government has three months to fill the post before the current governor, Karnit Flug, is due to step down.

Blejer meets Netanyahu’s preference for a world-renowned figure from abroad with strong Israel connections but no political alliances.

Born in Argentina, Blejer earned a master’s in economics from the Hebrew University of Jerusalem and a doctorate from the University of Chicago. In the 1980s and ‘90s he served in senior positions at the International Monetary Fund and the World Bank. In 2002, he was named president of Argentina’s central bank in the midst of one of the country’s periodic economic crises, but he was forced to step down after just five months after clashing with the economy minister.

Blejer was briefly considered in 2013 for the governor’s job. Besides his Hebrew University degree, Blejer’s other chief Israel connection is that he served on the board of IDB Development Corporation, the Israeli holding company controlled by fellow Argentine Eduardo Elsztain.

Blejer was a director when Elsztain took the controversial step of spinning off control of IDB’s Discount Investment Corporation unit to a foreign corporation controlled by Elsztain in order to circumvent the terms of the Business Concentration Law.

Blejer could prove to be a controversial candidate. Fischer and Flug have jealously guarded the independence of the Bank of Israel. Fisher made sure the principle was enshrined in the 2010 Bank of Israel Law that was passed while he was in office and Flug warned against any attempt to undermine it when she announced in July she would not seek a second term.

Blejer, on the other hand, has questioned the relevance of central banks’ independence, arguing that since the 2008 global economic crisis they have expanded their policy mandate too broadly in order to stay aloof of politics.

“In the post-crisis world, advanced-country central banks’ goals are no longer limited to price stability. This shift has inevitably reduced central bank independence, because the pursuit of GDP growth, job creation, and financial stability are clearly political decisions, which should not be made by unelected officials,” he wrote in a 2013 opinion piece.

Other people reportedly being considered for the job include Zvi Eckstein, a former deputy Bank of Israel governor; Nathan Sussman, who until recently headed the central bank’s research department and Banks Supervisor Hedva Ber.

Both Netanyahu and Kahlon, each of whom can effectively veto the choice of the next governor, have different priorities about who should fill the post. Kahlon has clashed with Flug over fiscal and housing policy and would prefer a candidate whose views are closer to his own, but ideologically further from Netanyahu’s free-market views.

The process of picking the previous governor, which suddenly emerged in 2013 when Stanley Fischer announced he was stepping down early, turned into a circus. Netanyahu made clear he did not want Flug, who was then deputy governor and Fischer’s recommended choice.

But the search for a celebrity governor failed miserably. Several big names turned down the offer. Jacob Frenkel, who had headed the Bank of Israel in the 1990s, was willing until reports emerged of shoplifting charges dating from years before (Hong Kong authorities later dropped the charges). Leo Lederman, Bank Hapoalim’s chief economist, withdrew, reportedly after Channel 10 News revealed he consulted with an astrologer.

In the end, the job was given to Flug after she had held the post on an interim basis for fourth months.

By law, Flug cannot stay past November 13, the last day of her term. If no successor has been found by then the deputy governor, Nadine Baudot-Trajtenberg, must step in. Born in Montreal and deputy governor since 2014, she would be filling the governor’s role at a critical time for monetary policy.

The Bank of Israel’s base lending rate has remained unchanged at a record low 0.1% for the last three years, but inflation is ratcheting higher and U.S. interest rates are rising, meaning the central bank will have to begin managing the delicate process of raising rates later this year or early in 2019, with all its implications for the financial markets, the shekel and the housing market.

The next governor will also have to decide about its policy of intervening in the foreign currency market to prevent the shekel from strengthening excessively and hurting exports. The policy has been a mixed success but in the meantime has built up Israel’s foreign reserves to a massive 32% of GDP.

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