'Nehama's Clout With PM Doesn't Matter'

Just before Yom Kippur, central ban governor David Klein becomes particularly forgiving. Klein, who has fought for more than a decade for financial market reform, forgives Prime Minister Ariel Sharon for the delays in approving the reform outlined by the team of Finance Ministry director general Josheph Bachar.

He hasn't missed the pressure the banking sector is applying to the Sharon office not to approve the reform. But just before Yom Kippur - also shortly before the cabinet will have to decide if he will be the next governor of the Bank of Israel - Klein said he remains optimistic and believes in looking at results.

Do you think the cabinet is acting responsibly regarding the banks' market domination in the financial services sector?

"You mean Bachar's recommended reforms of the financial market? The cabinet hasn't finished handling the matter."

It hasn't started yet, and that is exactly the problem.

"In order to answer that question, we must wait and see what happens when the recommendations are debated by the cabinet."

Do you believe Sharon will bring up the recommendations for debate? It looks like he is doing everything to torpedo them.

"I have great admiration for the work of the present government in economic policy. The government has made many structural reforms, and now is seeking to make To make structural changes in financial services."

Unless you can convince Sharon to change his anti-reform stance

"I am not sure Sharon's mind needs to be changed. I only know he is asking "questions.

You aren't worried?

"I assume Sharon intends to support the reform, but not everything needs to be treated like the Gospel truth. I would not assume that his asking questions indicates the commission's recommendations will not be implemented."

What is the point of convening experts, holding meetings, and asking questions - after you have a report from a panel of experts, the Bachar team itself, that did exactly that for months on end? This isn't a weird procedure?

"It is not a weird procedure. The one who must make the decision appoints a team that he trusts. Naturally, he also listens to the affected parties and it is completely his right to ask and get answers."

Yes, the banks

That is not a straightforward answer; you do know there is a problem. If there was no problem, Sharon would have brought the recommendations to the cabinet for approval ages ago. The delay is no accident.

"There is the opportunity of those impacted by the issue."

The banks?

"Yes, the banks, they are trying to change the recommendations. That is not improper. We want to make a sweeping change, so why not hear them out?"

Maybe because the banks have the wherewithal to pressure Sharon, due to his family's debts?

"I really don't think that is relevant."

But the commission already heard the banks' position. That doesn't raise suspicion when we must hear their position again?

"In the end, the proof is in the pudding. If the cabinet makes decisions that emasculate the Bachar report - which I do not believe will happen - then in retrospect it will be possible to say you were right."

If we are forced to give up some of the Bachar recommendations, what do we forgo?

"There is one central thing that cannot be forgone: the separation of the banks and the financial market. The separation of the provident funds, mutual funds and underwriting - I wouldn't insist on separating portfolio management."

If we forgo the recommended mechanism where customers pay distribution commissions on external provident funds recommended by their banks, not the fund managers?

"Then many many Bachar recommendations are ruined."

Then how do you rate the reform's chances of ratification?

"Very reasonable."

Despite Sharon's opposition?

"If Sharon didn't back the government's economic policy, that policy would not exist. That policy did many difficult things. That is why I have difficulty believing that just now, when the most-agreed upon reform arrives, he would oppose it."

Clout will out

You are very complimentary toward him. What about speculation that he will oppose anything that constitutes and achievement for Finance Minister Benjamin Netanyahu, with internal Likud elections in the background?

"I do not really plan to get into political speculation concerning the date of party primaries."

So let's give you another speculation: the CEO of one of the banks told us this week that he assumes [Bank Hapoalim chair] Shlomo Nehama has a great deal of leverage in Sharon's office

"We will see if Nehama carries clout in Sharon's office. We will see it in the results, If the results are not positive, then we can attribute it to that kind of clout. But I do not believe that will happen."

So why do you only rate the recommendations' chances as "reasonable"?

"Because when it comes to projections, I never speak about certainty."

Speaking of projections, we once asked you if you want to continue in the governor's office another term and you said you didn't plan so far ahead. Can you answer now?


But the next appointment is just three months away. You plan monetary policy for a ten-year period and you cannot plan for the end of the year for yourself?


If not you, then who should be the next governor?

"It is not my position to make a recommendation."

Before we end, how do you see the economic situation?

"The picture is really positive, except one worrisome matter. Economic growth is at 3.5-4 percent annually, and more importantly, there is more than 5 percent growth in the business sector. It looks like 2005 will bring more of the same. "

So what is the worrisome matter?

"Investments, particularly in infrastructure. If there is no energetic handling of investment, the chance of attaining sustainable growth is slim. We saw some recovery in the first quarter of this year, which disappeared again in the second quarter. That is our economy's weakest link and the government plays a central role in it."