There aren’t many economists worthy of stepping into the mighty shoes of outgoing Bank of Israel Governor Stanley Fischer, but Prof. Jacob Frenkel is one of them.
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Frenkel’s advantage is his exceptional international stature. That’s an extremely important characteristic at a time like this, when the global economy plays a major role in Israel’s own tiny economy, and when the state wants international corporations to invest here and push the economy forward.
Frenkel is an advocate of the free market and reforms, and in that, he is very similar to Prime Minister Benjamin Netanyahu. He believes in fiscal responsibility, low deficits, low government debt and low inflation. We must hope that he won’t hesitate to uphold these beliefs.
Overall, Frenkel and Fischer believe in the same economic policies. Fischer was considered a “responsible adult” whose advice should be heeded, and he handled the global economic crisis well, by lowering interest rates and thereby giving oxygen to the economy.
He also strengthened the banking system when he demanded that it increase its equity, and he is one of the reasons Israel survived the global crisis of 2008 relatively unscathed. In addition, Fischer succeeded in preserving the Bank of Israel’s independence and in getting the government to enact the Bank of Israel Law, which modernized the central bank and made it more stable.
Nevertheless, he didn’t push for reforms of the banking system, and he approved the existence of conglomerates that owned both financial and nonfinancial companies, which he should have prevented. He also went too easy on the government: He praised it too heartily and frequently defended the policies of the prime and finance ministers, even when they deserved to be criticized.
Recently, he has harshly criticized the excessive spending of the last two years and the higher-than-planned deficits, but that was after the horse had already left the barn. Fischer didn’t offer any significant criticism of the lavish spending approved by Netanyahu and Yuval Steinitz in real time, meaning in 2011 and early 2012, which is when his criticism was needed more.
Fischer also favored the fiscal rule that allows the government to increase spending too rapidly, even though it’s well known that all governments avoid raising taxes, and therefore large deficits that lead to large debts are unavoidable.
Nevertheless, the bottom line is that Fischer’s tenure was very successful. It must be hoped that Frenkel’s tenure will be so as well, and that he won’t hesitate to criticize Netanyahu and Finance Minister Yair Lapid in real time when necessary.