The Glassine Central Bank

Do you live on salary? Work for yourself? Are you approaching 50? It is high time to examine your financial health.

You know your assets and liabilities, and your net regular income. But do you know how much you'll be getting a month when you retire?

Two weeks ago, in this column, we asked TheMarker readers aged less than 50, who have pension packages nearing NIS 10 million, to write in. That was because we discovered that the retiring secretary general of the courts, Boaz Okon, is about to step down at the ripe old age of 48, with a theoretical 20 years of good work left in him, with about that amount.

None of you wrote in, so here we go again. Is there anybody out there entitled to not a ten million shekel severance package, but say a bonus of NIS 1.5 million to NIS 2 million, a  reward for good health?

It transpires that workers at the Bank of Israel are blessed with extraordinarily good health.

Despite the dry cold of the Jerusalem hills and the stresses of macroeconomic analysis, it turns out that the central bank workers show up for work, rain or khamsin. So when they retire, they get rewarded for all the sick days they didn't take, and that works out to a not-little cash injection of NIS 2 million.

Well, let is not indulge in hyperbole. Their extraordinary physical condition is not the real reason for that stupefying shower of gold. The real reason is the stupefying employment terms at the bank, which enable the workers to accrue double and triple the amount of sick days customary in the public sector, and to redeem them for cash. You won't find arrangements like that in the private sector.

Redeeming doubled sick days for cash is only one of the corrupt porky practices that the Bank of Israel developed over the decades. Workers who have no cars get extra for car maintenance. A third to half the workers get promoted each year, irrespective of merit, and there's much more.

Auto-castration at the central bank

Although the corruption at the Bank of Israel has created a tremendous public backlash in the last few months, the true damage it causes has yet to be pointed out.

The Bank of Israel has some 800 employees. But their bloated wages are hardly a problem at the macroeconomic level for an economy generating GDP of NIS 600 billion a year.

The corruption at the Bank of Israel bears another economic cost entirely, an enormously greater one than a few tens of millions squandered each year on pay. Over the years, the central bank has become trapped in its own rot. It has been unable to fulfill its function as the economic conscience of the nation, and the economic adviser to the government.

Read the reports and position papers that the Bank of Israel has been issuing lo these many years. Wonder no longer why the Bank of Israel has never so much as mentioned to the tremendous scope of corruption and waste in Israel's public sector.

Now that the true scope of corruption at the Bank of Israel is gradually coming to light, it's all clear. He who lives in a glass central bank won't throw stones.

Globetrotting governor

The economic adviser to the government cannot fulfill his job because it is operating in a corrupt body. It cannot point out one of the main reasons Israel's economy is stagnant: it itself is part of the problem.

The budget that the Finance Ministry prepared for the year 2007 is a bad one. It calls for a massive increase in the defense budget, it demonstrates the weakness of the treasury in the face of the defense juggernaut. It exposes the weakness of the prime minister, who's preoccupied in battling for his political survival, and it reflects the warped priorities of our elected leaders.

If we had a central bank respected by the people, it would stand tall and scream about the bloated budget, the waste, the pork barrels and the corrupt pay practices in the defense establishment. It would howl about the rot throughout the public sector. It would explain to the people that there really is no need to reduce aid to the old and ill, and the disabled, that the cuts could be made in our inflated, inefficient public sector.

But our central bank is corrupt, and it has been for a long time. It has no desire to do the job. That is why it confines itself to circling the inflation target and in tweaking interest rates to hit the target. It is purely mortifying that it hasn't even been able to do that for years.

If the governor of the Bank of Israel, Prof. Stanley Fischer, knew the depth of the rot at the central bank when he took the job, if he had known that the shady pay practices at the central bank were about to be exposed, he'd probably not have taken the job.

But he did and now he's there. If he doesn't want to end his four-year stint with a great big black stain on his resume, then he has to dig out the rot from the root.

Since taking the job, he's spent a great deal of time wandering the world, participating in important economic conferences, marketing the Israeli economy. Throughout his 19 months on the job, he's spent 140 days abroad.

Rethink your priorities, Governor. Israel's status in the international financial community is strong, thanks to the great achievements of the business sector, the low inflation, and the economic reforms carried out during Benjamin Netanyahu's term as finance minister.

But the status of the Bank of Israel among the public in Israel is deteriorating from day to day. Unless Fischer comes to his senses, the Bank of Israel will be unable to fulfill its role as economic adviser to the government, and will cease to matter.