After Bank of Israel Head’s Resignation, Looking Back and Ahead

Bank of Israel Governor Stanley Fischer talks during the session "Redesigning Financial Regulation" at the Annual Meeting of the World Economic Forum in Davos, Switzerland, January 30, 2010. Photo: World Economic Forum.

Bank of Israel Governor Stanley Fischer shocked Israeli markets when he announced his resignation just one week after the country completed national elections.

Add Fischer’s vacated post to the list of major political, diplomatic and economic appointments that will be made in Israel in the coming weeks and months.

Fischer successfully steered Israel’s economy through global financial turmoil and is generally credited with avoiding many of the pitfalls that have plagued other Western economies, particularly in Europe and the United States.

“Stanley Fischer was one of the best governors the Bank of Israel has ever had,” Steven Plaut, Professor of Economics at Haifa University, told JNS.org. “The announcement of his resignation is both surprising and disappointing.”

Fischer said he is “leaving the central bank in good shape.”

“I will continue working until the end, and I have five more months,” Fischer stated at a press conference announcing his sudden resignation. “Eight years is a long time. I intended to stay here eight years. I arranged with the prime minister that I would leave after the budget was submitted. I wrote a list of tasks, and I achieved most of them.”

Bank of Israel Governor Stanley Fischer.

“Professionally, I achieved the things that I believed I could achieve, and personally, my family lives far away,” he added. “The next governor will be in a better position than I was when I arrived at the Bank of Israel.”

That is because of the caution Fischer exercised during his tenure, according to Plaut.

“Perhaps the best things that he did were the things he did not do,” the professor told JNS.org. “In the United States, Chairman of the Federal Reserve Ben Bernanke essentially enabled President Barack Obama to spend trillions of dollars and push America’s debt to new limits.”

“Unlike governors in Europe and the U.S., Fischer didn’t spend billions on stimulus, and he didn’t print excessive sums of money,” Plaut said. “Fischer understands that eventually the public pays for these measures. A government should not force taxpayers to stimulate themselves.”

Fischer, a former chief economist at the World Bank, utilized his professional standing as well as his expertise to help steward Israel’s growth as an emerging economic power, despite regional security challenges not faced by many other nations.

His leadership amidst global economic uncertainty and regional turmoil has earned him and Israel’s economy praise in the international marketplace.

In 2010, the Bank of Israel was ranked first among central banks for its efficient functioning and Fischer was selected as Euromoney Magazine’s Central Bank Governor of the Year.  In 2011, the credit rating agency Standard & Poor’s raised Israel’s long-term foreign currency credit rating from A to A+.

“Fischer is an extremely smart guy that understands economics better than the politicians, and even better than most academics. Top economists are studying Fischer’s textbook on macroeconomics,” Plaut said.

Many are sorry to see him leave his post two years before fulfilling a second five-year term, but others have blamed Fischer for the tremendous rise in Israeli housing prices that led to massive social protests in the summer of 2011. Since Fischer became governor, housing prices have risen 70 percent, putting their cost out of the reach of many aspiring first-time homeowners.

Defenders of Fischer point to a lack of affordable building projects, which can only be solved by the government and not by the Bank of Israel. “What the Bank of Israel can do is to deal with demand, but the government should deal with supply,” Fischer said at the press conference, “and that is the most important thing, because that is where it’s possible to have the greatest effect.”

Opponents of Benjamin Netanyahu have quickly jumped on Fischer’s announcement as a condemnation of the recently re-elected prime minister.

“Governor of the Bank of Israel Prof. Stanley Fischer’s resignation is a major vote of no confidence in Prime Minister Benjamin Netanyahu and ringing slap in the face of his economic policy,” said Labor Party chairwoman MK Shelly Yachimovich.

The Labor Party has repeatedly stated that it will not sit together in a coalition led by Netanyahu.

Yachimovich added that the resignation “sends a very worrying message to the Israeli people, because the governor is signaling that he is not prepared to be a partner to the economic chaos and political hell that will prevail in Israel after the new government is formed.”

“I don’t know that there is any evidence to support that, and I don’t think Shelley Yachimovich is correct,” Plaut told JNS.org. “We don’t know why he is leaving the post.  The reasons may be purely personal.”

“In the past, bank governors have resigned when Labor was in charge, and nobody saw it as a damning condemnation of the government’s policy,” Plaut said.

“If you want to look at this through the lens of conspiracies and paranoia, it is possible that there will be a great deal of inflationary pressure in the next few years,” he added. “And maybe he doesn’t want to be here when it hits. But, I personally don’t believe it.”

Plaut said a Fischer resignation before the elections could have affected the political process, so that it made more sense for the governor to wait until afterward.

“The real question is who is going to replace him,” Plaut said. “What is important is that whoever is the next governor should be someone who is similarly versed in macroeconomics and someone who is not going to be a political hack.”

“We need a governor who will be able to stand up to the prime minister,” he said.