Taking Stock / Toothless but Razor-tongued

Yossi Vardi shot out of his chair and blocked the exit with his body.

The then governor of the Bank of Israel, Professor Jacob Frenkel, a man famously light on his pins, faked left to distract Vardi and tried to slip through the door.

But Vardi did not achieve his status by shrinking from trouble. "I've had it, Professor," he roared. "You're not getting out. You will give this council the respect it deserves and answer our questions!"

But Frenkel, no lily-livered featherweight himself, had no intention of obediently giving answers to the advisory council, which he felt was basically a monthly irritation best eradicated. He figured the deal was clear enough: The council members were sufficiently honored by virtue of being on the council. And that, with a cup of orange squash, a flattened Danish and a smile, should be that.

Discussions in the central bank's advisory council in the mid-1990s were a sham. Leaks to the press began even before anybody had sipped his squash and continued after the discussions were over. The headlines were always a variation on a theme: The council blasted the Bank of Israel and called on it to lower interest rates.

After a time, the show was over, but it is about to make a comeback. This time, however, the fireworks are expected be a lot more explosive.

Gushing leaks

The composition of the council, as proposed by Finance Minister Benjamin Netanyahu, creates an absolute majority. That majority consists of two types of members: those who have been demanding steep rate cuts for years, and those whose entire livelihood depends directly on Bank of Israel decisions.

There is also a third kind of member. That would be a person who is not only stridently opposed to central bank policy, and a fervid supporter of fast, hard rate cuts, but whose livelihood also depends directly on Bank of Israel decisions. Namely, the panel's putative chairman, Aharon Fogel, who is also the chairman of Migdal Insurance.

Committees appointed to advise the central bank never did have any teeth, but they certainly had tongues like razor blades. The gushing leaks were capable of creating terrific pressure on the central bank governor.

Pressure on the governor and passionate public debate over his policies are good things, especially today, given the criticism of his zigzagging monetary policy and the governor's horrendous mistake in December 2001.

But the potential contribution of a panel manned chiefly by bankers, economists and managers who represent the interests of the wealthy and bank owners is questionable.

Advisory panels to the central bank have always had bankers, a vestige of the time when the entire capital market was nationalized and the banks were the tool through which the Bank of Israel conducted its monetary policy.

But today, the Bank of Israel does not need the banks to implement its policy. Their relationship is more one of watchdog and subject.

Right now, no small proportion of Israel's tycoons, some of whom hold controlling interests in the banks, are at loggerheads with the Bank of Israel. Outstanding issues include control over the banks and centralization of credit facilities.

Aharon Fogel, for one, has been struggling to persuade the regulators, headed by the central bank, to let Migdal either buy a controlling stake in Bank Leumi or to take over United Mizrahi Bank outright. The Bank of Israel does not applaud either idea, chiefly because Bank Leumi holds a 20 percent stake in Migdal and Migdal holds a 9 percent stake in Bank Leumi.

No bloody hands for Netanyahu

Does Israel lack learned academics, lawyers or businessmen with strong opinions on macroeconomic issues who would be untainted by conflicts of interests of the sort clinging to the crowd Benjamin Netanyahu has recommended to man the panel?

Could the panel not include people from medium-sized enterprises, whose business does not live or die at the central bank's whim? Why must the committee consist entirely of bank shareholders and tycoons?

Benjamin Netanyahu is perfectly well aware of the vested interests of the people he named. He knows their opinions on monetary matters. We must therefore conclude that the panel he proposes is not designed to enhance supervision of the central bank, but rather to get on its nerves and open a new front in the warfare against it.

Naturally, Netanyahu is much more devious than his predecessors. Seeing the humiliation that Silvan Shalom suffered over his efforts to create a governing council for the central bank, Netanyahu chose not to get his own hands dirty. He is leaving the work to the advisory council, whose opinions he knows so well.

Fogel earned a reputation as a serious, important and original economic personality back when he served as the treasury's director-general in the early 1990s. Back then, he and his treasury staffers were dubbed "The Fogels" for their bitter battles against the politicos trying to torpedo anything that so much as smelled of a budget cut.

But the Fogels of 2003 have another job entirely, it would seem. Their job is to be the finance minister's bludgeon to batter and weaken the central bank. Fogel has accrued much wealth and status in the business sector. He does not need anybody's respect. He would do well to advise the finance minister that his conflicts of interest preclude his taking the job.

At the same time, he should advise Netanyahu to appoint people whose sharp criticisms of the Bank of Israel are clearly motivated solely by the good of the people.