WikiLeaks: The Israel File / The Fischer Files

U.S. Embassy cables obtained from WikiLeaks reveal efforts by Israel's central bank governor to help save Gaza's economy, as well as his opinions of top government officials.

Bank of Israel Governor Stanley Fischer was ranked as one of the Israeli public's three most admired people in a Haaretz opinion poll last week - 60 percent of respondents said they were satisfied with his work. Now, the WikiLeaks documents are shedding more light on what exactly that work has entailed, including a campaign to save the Palestinian economy.

The files reveal Fischer's appeals a few years ago to the U.S. government to pressure Israel on the Palestinian issue, as well as his criticism about the findings of the National Insurance Institute's 2005 poverty report and his opposition to cutting the defense budget. Fisher evinces great esteem for Prime Minister Benjamin Netanyahu, the man who appointed him six years ago. By the way, in the most recent public opinion survey published in these pages, only 38 percent of the respondents expressed satisfaction with the way the premier is doing his job.

Stanley Fischer
Tomer Appelbaum

In November 2008 the deputy chief of mission at the U.S. Embassy in Tel Aviv, Luis Moreno, sent a cable to Washington with the heading: "Gaza Cash Crisis: CBG Fischer Calls for USG Assistance." That was just one month before the Israel Defense Forces embarked on Operation Cast Lead in the wake of the escalating Qassam fire on Israel. At that time Israel was energetically thwarting money transfers to terror organizations. As a preventive measure, the heads of Bank Hapoalim and Discount Bank were asked to cut off all ties with banks in the Gaza Strip due to concerns that terror victims could sue them for compensation.

U.S. Embassy officials tried to forestall this move, fearing it would destroy Gaza's banking system. In a meeting with the ambassador, Fischer told the Americans he understood the U.S. government's concern over Gaza's economy, but he noted he also understood Israel's banks, which needed to defend their own interests.

He added that the Bank of Israel was still working to have the government-controlled Postal Bank handle some of the banking services private Israeli banks had been providing the Gaza Strip. However, noted the cable, he added that "forcing the Postal Bank into a relationship that was clearly not in its commercial interests would require approval by the Finance Committee or a plenary in the Knesset."

The fact that kidnapped soldier Gilad Shalit was still in Hamas' hands would make it difficult Fischer said to persuade Israel's government to help the Palestinian banks and "would make that decision politically difficult to deliver," he said. In a parenthetical note, the Americans wrote: "Shalit's situation is followed closely by the Israeli public and has become an issue of national concern. Any effort perceived as helpful to Gaza is generally frowned upon by the Israeli public."

Moreno commented: "Given resistance within the Israeli government to forcing the Postal Bank into the relationship, Fischer asked Econcouns (the economic counselor ) for the embassy's assistance in putting pressure on key Israeli officials. He said it would be helpful to raise the issue with the Ministry of Finance and the Ministry of Communication, the latter of which is responsible for overseeing the Postal Bank."

He wrote in summary: "Econcouns offered the embassy's help and said that Embassy officials would call on the ministers or DGs (directors general ) at these ministries as soon as possible, provided we got a green light from Washington to do so."

In conclusion, Moreno wrote, "Action requested: Embassy stands ready to press MOF and MOC to 'encourage' the Postal Bank to take up the Gaza banking relationship, if Washington agencies agree that we should do so. Please advise."

A political problem

In another conversation with U.S. officials nearly three years earlier, Fischer said Hamas' growing strength was not an economic problem for Israel, but solely a political one.

"He said that the USD 10 billion Palestinian economy had very little impact on Israel's USD 125 billion economy, and likened the relationship between the two to that between the U.S. and Mexico," the diplomatic cable states.

Fischer said he was pleased Israel's financial markets had demonstrated "resilience" in light of Hamas' election victory, according to a cable sent to Washington: "He said that the Palestinians were negatively impacted by the reduction in opportunities to work in Israel," and noted it would be "unrealistic" to think the Jordanian or Egyptian economies would come to their aid. "He added that the Palestinians would face even more severe problems if the Israeli economy slipped into recession and further limited the number of Palestinians who can work in the country. Fischer said that he favored the transfer of PA customs revenue collected by Israel to the Palestinians, but would not predict further GOI (government of Israel ) actions on the issue."

In his conversations with the Americans, the bank governor praised the Israeli economy's resilience even in times of crisis, such as the Second Lebanon War and the escalation in the territories. Fischer did this consistently, even when the data indicated different trends. He said it was necessary to look at "relative" poverty rather than "absolute" poverty, and said that increasing social gaps were a problem.

"He also said," according to a cable sent following a meeting Fischer held with Ambassador Richard Jones in mid-2006, "that income statistics are incomplete and present a more negative picture than actually exists. For example, they do not take into account the black economy and are adjusted for rents, which understates income for those who own their own homes, as is predominantly the case in the Arab sector." Fischer added that "however one defines it, the new government formed after the elections would have to deal with it." The new government in question was Ehud Olmert's.

The cable continued: "Fischer said that [Olmert] is not particularly troubled by the welfare programs proposed by the Labor and Likud parties as part of their election campaigns and is optimistic about the GOI's plans to deal with the poverty issue, even though it is so politically difficult." In the summary of the meeting, Jones described Fischer as "relaxed and confident."

In another conversation with Jones, Fischer "criticized the MOF for impinging on the BOI's (Bank of Israel's ) independence by its attempts to control the salaries of the Bank's employees." He spoke about the new Bank of Israel Law, which was still being formulated at the time and was finally approved at the end of last year. In his summary, the ambassador wrote that Fischer expressed "great frustration at the impasse over the workers' wage demands, and said that the MOF's unwillingness to help solve the problem called into question the underlying assumption that guided the formulation of the law that an atmosphere of good will and cooperation would always prevail between the MOF and the BOI."

However, in another conversation with Jones several months earlier, Fischer had unhesitatingly praised the Finance Ministry, "saying that their 'reasonable' approach has been responsible for the economy's stability and ability to take shocks in stride."

"Fischer is surprised at how many people think the MOD (Ministry of Defense ) can get by with a smaller budget, even after all of the post-war talk of the need to increase defense spending," observed Jones in October 2006. "He is of the mind that if you want more of something, you generally need to pay more for it, but lots of people who claim to be knowledgeable on defense issues tell him that there's a fair amount of waste and inefficiency that can be cut."

"Bibi (Netanyahu ) is the most serious finance minister Israel has had. He's doing a great job," said Fischer to the economic counselor at the U.S. Embassy in Tel Aviv in June 2005, a month after he took up the post of bank governor. He "also expressed support for Netanyahu's Finance Ministry team: 'I have tremendous respect for the young people over there,'" according to a cable. Two months later Netanyahu resigned from the post due to his opposition to Prime Minister Ariel Sharon's disengagement plan.

When he first took up the position, "New BOI Governor Stanley Fischer expressed optimism about the Israeli economy in a courtesy call by the ambassador," according to embassy officials, who also reported that he told them: "'Bibi is pushing hard' for the implementation of his broader economic policies" and noted he was particularly impressed by Netanyahu's policy in two areas: reducing government expenditure and plans to cut taxes.

In a separate meeting with U.S. Embassy officials, then-Finance Ministry director general Yossi Bachar "called Netanyahu and Fischer a 'dream team' that worked together extremely well." Bachar also "said he was waiting for when an impatient Israeli participant would finally interrupt Fischer and tell him to get to the point: 'It hasn't happened yet, and somehow I don't expect it to happen soon.'"