Taking Stock / Agenda for the Governor

Paul Samuelson used to say that God gave people two eyes so they could look at two things, two sides of the coin, and see different opinions.

One of his students recently echoed the famous economist's words. When asked about his stand on several economic matters, the new Bank of Israel governor, Stanley Fischer, quoted his teacher. Leaving aside his support for the Bachar reform, which would sever the banks from their provident and mutual funds, Fischer has made no commitments yet. He is studying the material. He is listening and presenting two possible positions.

Now that inflation is dead and external pressures have abated, the missions the governor undertakes in the years to come depend largely on his personal preferences and ambitions. Here are a few ideas for the new government's agenda.

l Make the Bachar reform happen: The banks will shortly be launching their last-ditch and most violent campaign to derail the reform. They delivered a preliminary threat to Finance Minister Benjamin Netanyahu this week, via the press, mentioning "the last of days" weapon - an attack on him personally, designed by the master of such campaigns, advertising agent Motti Moral.

The very last battle will be in parliament, where Netanyahu and his director general, Joseph Bachar, will need massive backing from Fischer, who brings the mega-weapon of his great prestige. Any hesitation on his part would weaken Netanyahu.

The Bank of Israel is also the one that will need to lead the reform's execution: its officials should already be preparing operative plans for the day after legislation.

As in all cases of reform, the banks will try to claim that it is not practical. That was how they tried to kill tax on capital gains. The Bank of Israel's role isn't just to explain why the reform is needed; it's to show how it can be carried out quickly.

Reform of the banks is the most urgent item on Stanley Fischer's agenda.

l Page 40 of the Bachar report says: "The finance minister, in coordination with the Bank of Israel governor, will appoint a team with (officials from) the relevant bodies to examine and consolidate recommendations regarding content and structure of supervision for the capital and financial markets, especially given the structural changes proposed in this report. The team shall deliver its recommendations to the finance minister no later than March 31, 2005."

The deadline is long gone, but the team never filed its conclusions so the question of supervision over the capital market remains unanswered.

The Finance Ministry hopes to merge the three regulatory bodies - the Israel Securities Authority, the treasury's capital market and insurance sector supervision division, and the Bank of Israel's Supervisor of Banks.

The Bank of Israel believes that since the banks will be thrown out of the capital market for the foreseeable future, bank supervision should remain outside the supervisory body overseeing the capital market.

The structure of supervision over the capital market requires decisions, according to which the Bank of Israel will be determining its policies.

l The Bachar report mentions a log list of supplemental steps to separate the provident and mutual funds from the banks, most of which fall under the Bank of Israel's purview: quickly dismantling obstacles blocking the development of a market for negotiable securities, promoting the extra-banking lending market; developing money market mutual funds; offering a repo of securities as an alternative to bank financing; and naturally, completing the full registration for trade of all government bonds.

These are the three most burning issues on the governor's plate. He won't even have the usual hundred days' grace that any new immigrant should have, especially when landing straight into the highest post in Israel's financial system.