“A stellar example”

As he completes an exceptionally difficult eight-year tour of duty during a turbulent, indeed dangerous, worldwide financial crisis, Bank of Israel Gov. Stanley Fischer has achieved a unique status. He won the respect – if not the total assent – of those who had found his pro-market economic orientation anathema, and in 2005 vigorously opposed his nomination as governor by then-finance minister Binyamin Netanyahu.

While this alone is a remarkable achievement, the list of Fischer’s many accomplishments is much longer and of greater significance. It took President Shimon Peres, at a sendoff party for Fischer, almost 30 minutes to praise the governor’s tough stand during the 1984 economic stabilization plan, which Peres insisted tilted the scales in favor of reform.

(Fischer rejoined that Peres’s account was a bit exaggerated “but would do for an evening like this.”) There are several important lessons to be gleaned from the wide admiration Fischer garnered despite great odds, since central bankers, who habitually get in politicians’ way and often impose hardships on their fellow citizens, are rarely objects of adoration.

One lesson is that even in the treacherous field of Israeli economic policy, bedeviled by excessive politicization and ruthless assertions of power by politicians, tycoons, bureaucrats and their many henchmen, lawyers, accountants, academicians and media persons, an officeholder of uncompromising integrity can win crucial battles when he acts with courage and determination.

Fischer proved his mettle taking on some powerful “captains” of our economy (“The connected” as TheMarker’s Guy Rolnik calls them), who fought tooth and nail to prevent him from dismissing one of their own, Danny Dankner, after he exploited his position as chairman of the board of Bank Hapoalim for personal gain.

Fischer, who demanded Dankner’s resignation, was subject to severe attacks. Nevertheless, the governor managed to teach the high and mighty the principle of accountability, so sorely lacking in Israeli public life.

But integrity by itself could not win battles. Fischer possesses a rare blend of other virtues: an extensive knowledge of economics (he is the author of some of the field’s basic texts), and a nimble intelligence that enables him to sort out complex issues. He also has the unusual ability to listen to those with whom he disagrees, and the guts to make decisions even on controversial and risky matters.

All this while walking humbly with his fellow men.

IN A Jewish state, however, even such stellar qualities have not exempted the governor from criticism.

First there was the complaint that to help Israeli exporters, Fischer kept the shekel’s value relatively low, lowering interest rates and buying so many dollars that Israel’s reserves reached a whopping $70 billion. Savers were not able to get significant returns except in real estate.

Consequently the price of housing skyrocketed, making it beyond the reach of most Israelis, especially the young.

The fact that it takes an average 160 monthly salaries to purchase a small apartment was a major reason for the eruption in the summer 2011 of the social justice protests, which scared the government into making harmful concessions to populist demands, creating a huge budget deficit. It also created a dangerous real estate bubble that could burst at any time, forcing many mortgage holders to default and endanger bank solvency.

“We were asked,” the governor responded, “why we do not raise interest rates to lower [housing] prices. The answer is simple: the added value from exports is 30 percent of GNP, while from housing it is about 8%... [Had we preferred housing] we would have caused a further rise in the shekel, lowered growth and raised unemployment, an unacceptable outcome… Cheaper housing depends on the government releasing more land and shortening the time – 13 years [!] – it takes to finish housing projects,” explained Fischer.

Another charge was the failure to tackle more forcefully problematic institutional structures and practices in Israel’s financial markets, especially its banking sector.

Critics claimed that the Bank of Israel could have done a lot more to curb the banks’ excesses, such as preferential credit allocation to cronies on unreasonable terms and the denial of credit to small and medium businesses. The credit crunch that ensued badly curbed economic growth. It was a chief reason for the slow development of the Negev and the Galilee, where most firms are small.

The central bank could have also prevented the levying of extortionist interest rates and inflated service charges from households. But it preferred to focus on protecting banks’ stability, even at the cost of discouraging competition and efficiency and sacrificing the greater economic good. For 60 years, not one new bank was established in Israel, and plans to establish an Internet bank got stuck in the bureaucratic mill for years.

Critics should take into account that the Bank of Israel’s chief mandate is to ensure price stability – namely fight inflation, a most essential objective that it has achieved with great skill and under very difficult circumstances.

Furthermore, considering the sorry state of Israeli financial markets, the central bank had to take seriously the imminent danger to bank stability. A bank failure, everyone agrees, could have had disastrous consequences. Since most of the information about the challenges the Bank of Israel faced in protecting bank stability is not available, judgment about this issue should be suspended.

Also, the toxic political environment in which the Bank of Israel has had to operate and the enormous efforts Fischer had to devote to the task of making it functional and more efficient must not be forgotten. Miraculously, Fischer managed to push a new central bank law that greatly improved it.

Another major lesson the “Fischer Model” offers could revolutionize Israel- Diaspora relations and endow Israel with greater strength in facing difficult challenges.

Fischer proved that a Jew who has climbed to the top of his profession can remain an ardent Zionist without losing the respect and even admiration of his colleagues; and that he can serve the Jewish people and Israel in an outstanding manner even when most of his life was not spent in Israel, and his professional achievements were not made there.

Fischer was willing to make great sacrifices in order to serve his people. His example could hopefully encourage other Jews with outstanding professional achievements to serve a tour of duty in Israel and enrich it with their talent and accomplishments.

Already we have another example of such devotion, in the willingness of Prof. Jacob Frenkel, a friend and colleague of Fischer, to accept another tour of duty as the next governor of the central bank.

Originally an Israeli, Frenkel, like Fischer, forged an outstanding international career in academia and in top financial institutions. Like Fischer, he made significant professional and material sacrifices to serve Israel and the Jewish people. Since he must be aware that to enable the Israeli economy to grow he will have to curb the extraordinary power held by a nexus of politicians, oligarchs and their many enablers, who despoil the economy, he showed great courage in accepting this position.

For their continued and unflagging devotion to Israel, we owe Gov. Fischer, and his family – especially his wife, Rhoda – who fervently participated in his arduous mission, deep gratitude.

May they serve as an example to emulate for other gifted and devoted Jews, who realize that we must not miss the miraculous and historic chance given to the Jewish people to rebuild its home, where the unique and extraordinary culture of Judaism can thrive again on its ancestral soil.