Flug must come out of Fischer’s shadow

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Flug must come out of Fischer’s shadow

By Stephen Darori

If it turns out that Stanley Fischer continues to pull the strings at the Bank of Israel by telling his successor what she ought to do, she will suffer for it.
20 October 13 17:20, Stella Korin-Lieber
Now the real problem begins, which is far more substantive than the months without a Bank of Israel governor. The governor’s main job is to be the government’s economic adviser. The government’s economic team is the team that chooses the governor-adviser, and that is Prime Minister Benjamin Netanyahu and Minister of Finance Yair Lapid. But today, they made a decision under duress; a compromise. Compromise sounds like tepid, neither hot nor coldNetanyahu and Lapid made a decision without enthusiasm or a sense of coming to terms with it. Under these circumstances, they will find it very difficult, to the point of impossible, to accept the governor of the Bank of Israel as their senior economic adviser. As it is, they are convinced that they were born knowing everything.If they consulted with previous governor, Stanley Fischer, with his great stature in the world and among the Israeli public, heard to what he had to say, but did not always listen (in recent years, the Bank of Israel has repeatedly mentioned, as part of its supreme goals, the increasing of the governor’s standing as the government’s economic adviser). But why should they listen to a governor appointed as the default option, after the failure to pick an American star? Why should they value her? Why consult on matters critical to the Israeli economy? Why should they take seriously the findings of her Research Department?The answer is that it depends on Dr. Karnit Flug. Especially on her. Flug, who was chosen as better for the job than Mario Blejer, Zvi Eckstein, Victor Medina, and others. (As for Larry Summers, whom Netanyahu reportedly recently approached, we can only say that the approach should not have been made. It is inappropriate to invite the leavings of President Barack Obama in view of the public criticism that prevented Summers from succeeding Ben Bernanke as chairman of the Federal Reserve Board.)Flug was chosen after she proved, even to Netanyahu and Lapid, that she was ready for the job. If she wallows in anger, insult, and bitterness over the months she was exposed to the freezing winds from the Prime Minister’s Office, she is liable to sink and not free herself for economic achievements and breakthroughs.The time is over when a central bank governor was just a monetary man protecting the government’s inflation target. Macroeconomic expertise is not enough. The personal and professional standing that the world’s central bankers establish among the public and decision-makers in the country and worldwide are also important. It is not just an innate charisma (which was conspicuously lacking among the four finalists), and definitely not work by sophisticated media advisers. Fischer is the founding father of the new governorship model. The general public recognized him; he was “the responsible adult”, “the king of the Israeli economy”. He was the man who could be relied on in times of trouble and uncertainty.

This was not just because he was an American star who landed in Israel, but because he had absolutely no political affiliation. Public trust in him had a decisive influence on the government (notwithstanding considerable criticism of his professional decisions) was based on his personality, his style of speaking, his clear language, the distance he maintained from the wearying day-to-day language, the speeches which were always portrayed as pro-public. More than that, Fischer emerged from the anonymity of setting the interest rate and keeping the government’s inflation target and greatly expanded the central bank’s areas of engagement to jobs, exports, housing, education, the cost of living, competition, banking credibility, and more.

Fischer’s position on each of these issues made him an important player in it. In this way, broader swathes of the public were exposed to his public standing. This resulted in another unique phenomenon: his personality and unequivocal identification with the Israeli economy brought to Israel international praise that far exceeded the country’s proportionate share in the world. It also resulted in the soaring of his stature as a top global figure, about whom the foreign media wrote and national leaders sought to meet, and his central banker peers consulted with on a daily basis.

Can Flug strengthen this position? That depends on how she will perform, how she will build herself as an independent figure who does not have to make too much of an effort to be Fischer’s Siamese twin, but as a person who preserves, in her own quiet, unassuming, and less charismatic way, her standing in the government and the public, and Israel’s standing in the global economy. Difficult, but possible.

Crooked are the ways of the world. Fischer great stature brought Flug to the job, but also delayed her appointment. Fischer took care to foster and emphasize that he raised Flug as his successor, that he recommended her for the job. This put Netanyahu, the man with the authority to appoint the governor and who is supposed to work closely with her, in a bind. As if the prime minister is a docile automat who does only what he is told by someone of renown. Ego is something that the prime minister has, and a lot of it, and there is nothing to do about it.

Fischer was supposed to know when to stop intervening. He has not been in Israel for months, he resigned from his post, he was no longer a public figure. Had he released Flug from the umbrella he held for her, the appointment might have come much sooner. This means that another of Flug’s critical jobs will be to become independent, including from her mentor. If it turns out that “Fischer won”, as people are saying today, and that he continues to pull the strings at the Bank of Israel by telling his successor what she ought to do, when and by how much, she will suffer for it.

Some appreciation for Netanyahu. Neither Flug’s femininity nor her reports from the remote past influenced Netanyahu when he did not accept Fischer’s recommendation to appoint Flug months ago. It was differences in economic thinking; Netanyahu is an aficionado of the free market to a far greater than degree than Flug. Nonetheless, it must be completely said in Netanyahu’s favor that he is prepared to learn about Flug and admit that she is right for the job, especially compared with the other three finalists, and he was prepared to swallow his pride and change his mind. Even if he feared the criticism and media ridicule that will unquestionably come, he did what he thought was right.

Another point in Netanyahu’s favor: he did not have to depend on Lapid. The Bank of Israel Law stipulates that the prime minister chooses the Bank of Israel governor after consulting with the finance minister. The advice does not have to be taken; sometimes is means to notify. Nonetheless, Netanyahu walked hand in hand with Lapid, even though Lapid’s political power is waning.

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