Editorial

Election-anytime Economics

Netanyahu generates the constant political uncertainty of elections any minute, thus dictating to his ministers a populist agenda, or one that evades difficult decisions

Governor of the Bank of Israel Karnit Flug receives an honorable doctoral degree at the Tel Aviv University, Israel May 3, 2018
\ AMIR COHEN/ REUTERS

Bank of Israel Governor Dr. Karnit Flug told Prime Minister Benjamin Netanyahu over the weekend that she will not contend for another term at the helm of the central bank and will thus step down in November.

The relationship between Flug and Finance Minister Moshe Kahlon had been tense, with the tension peaking when the Bank of Israel issued its annual report a few months ago, criticizing Kahlon’s flagship program to reduce housing prices, the Mechir Lemishtaken (Buyer’s Price) program. Flug was also critical of Kahlon’s desire to lower taxes following a one-time increase in the state’s revenues. Kahlon didn’t like being criticized and threats were being heard from his circle that he would not support her for another term. Flug apparently got the hint.

On the other hand, she decided in her notice to Netanyahu to criticize the government in general and Kahlon in particular, writing, “The existence of an independent professional entity is doubly important in a reality in which the government operates under constant uncertainty regarding the date of the next elections, and short-term political constraints. For decision makers to be exposed and aware of the ramifications of different policy alternatives for the short- and long-term, it is crucial that the professional opinion be rendered openly, transparently and without fear.”

The criticism was aimed at Kahlon, but also at Netanyahu, who generates the constant political uncertainty of elections any minute, thus dictating to his ministers a populist agenda, or one that evades difficult decisions. Flug believes that this behavior has economic costs. This is seen in the Buyer’s Price program, which grants NIS 1 billion in benefits to a small group of apartment buyers and causes a distortion between the subsidized market and the free market. This is also evident in the problems of public transportation and traffic jams, which cost the economy billions of shekels a year and necessitate considering unpopular solutions like imposing a traffic-congestion charge.

The governor’s most important message is not the criticism of one minister or another, but a warning about the selection process for the next governor. Netanyahu and his ministers have not hesitated during their current term to weaken gatekeepers like the Antitrust Authority, the Electricity Authority, the communications market and the Capital Market, Insurance and Savings Authority.

Netanyahu understands the importance of the professionalism and reliability of a central bank and knows that this must not be tampered with. Unlike significant players in the domestic arena, the central bank also has a role in the global environment and influences how international markets relate to Israel. The governor’s letter was meant to remind him of this, lest his current government’s tendency to weaken gatekeepers include the central bank.

The above article is Haaretz's lead editorial, as published in the Hebrew and English newspapers in Israel