Finance Ministry Officials Attack Fischer

Senior treasury official: "The Bank of Israel's goal is to cut the ribbon, not to help the economy."

The bad blood between the Finance Ministry and the Bank of Israel surfaced once again yesterday. Refering to the central bank's plan to purchase government bonds, a senior treasury official declared yesterday: "The Bank of Israel's goal is to cut the ribbon, not to help the economy. When we proposed the leveraged [investment] funds, the Bank of Israel objected, claiming there was no market failure and no reason to intervene. Now they are presenting their own grandiose plans."

Army Radio yesterday broadcast these and other comments, originally made during a recent meeting of Finance Ministry officials.

The officials attacked the central bank governor, Stanley Fischer, and his policies on what was a very bad day for the local markets: "What Fischer is doing is against the law that prevents the printing of money. He is flooding the market with money and is not absorbing excess [funds] at the same time. If we were to do the same thing, they would kill us. This will have inflationary effects," the treasury officials were quoted as saying.

Investors seem to have taken the statements to heart, and sent the Tel Aviv Stock Exchange down yesterday on one of its worst days so far this year.

"Someone must intervene, but for now Attorney General Menachem Mazuz is not permitting any disputes with the Bank of Israel. When the new government is formed, we will take care of it," said one ministry official.

In return for agreeing to stay on for a second term as governor, media reports have said Fischer is demanding the immediate passage of the new Bank of Israel, the transfer of the Capital Markets division in the treasury to the supervisor of banks in the Bank of Israel, and control over setting wages for Bank of Israel employees. Fischer has denied the reports.

The media have also accused Fischer of being too busy with public relations aimed at glorifying himself in Israel and overseas.

"Every other day he holds a press conference. He complains of never-ending leaks, but never shuts up himself. Everyone in the press is ingratiating themselves to him, and we look like the bad guys," the treasury officials said, according to Army Radio.

Relations between the central bank and the Finance Ministry have been very strained for years. Fischer and various finance ministers have made attempts to preserve proper working relationships, or at least to appear to do so, but the tensions have occasionally risen to the surface - particularly concerning the high salaries at the Bank of Israel.

Other matters of contention include the new Bank of Israel Law. The present law dates back to 1954, and while Fischer has been lobbying hard for a new version, it seems unlikely that it will pass this year.

Another big fight is over the central bank's attempt to deduct NIS 860 million from the treasury's deposits with the bank - a step the bank took in opposition to the ministry's position. The treasury called the move a "scandal," saying it constituted expropriation. The final word has yet to be said on the matter.

Fischer has commented on this subject: "The Bank of Israel and the treasury are working together on dozens of issues, and it is natural that there will be disagreements on one or two."

Both sides tried to calm the situation down yesterday. The finance minister's bureau said: "The kind of comments reported by Army Radio does not reflect the finance minister's view. The governor of the Bank of Israel has a decisive contribution to make to Israel's economy. The excellent cooperation between the minister and the governor, and between the treasury and the Bank of Israel, is a powerful element in the government's handling of the global crisis, and in its ability to take effective steps, as have been taken, to strengthen the Israeli economy.

"There is a need to continue to act to strengthen this connection," said the minister's bureau. "Even if there are professional differences, the way to solve them is with cooperation and dialogue, and not by leaks, as happened this morning."

The Bank of Israel response: "We regret the reports attributed to the management of the Finance Ministry. We need to continue to cooperate with all the sides to weather the economic crisis in the best way possible."

As to the claims of printing money, the central bank said the purchase of government bonds would not increase the money supply faster than normal. In addition, the bank said the steps were part of its efforts to return inflation to within the 1-3% target range for 2009.

Senior Bank of Israel officials also said they never heard any such criticism of Fischer or the bank in meetings with Finance Ministry officials.