Unleashed Potential

Jacob A. Frenkel brings an international name and reputation to his new position as governor of the Bank of Israel. (David Vaaknin/StillsBank)

Jacob A. Frenkel brings an international name and reputation to his new position as governor of the Bank of Israel.
(David Vaaknin/StillsBank)

On American Independence Day, a committee headed by Judge Yaakov Turkel approved a new governor of the economy, so to speak, when it approved the appointment of Jacob A. Frenkel as the new governor of the Bank of Israel. This is the second time Frenkel, who replaces Stanley Fischer, has filled the role. He had the same position from 1991 to 2000.

Frenkel was serving as JPMorgan International’s chairman when he accepted the nomination by Prime Minister Binyamin Netanyahu and Finance Minister Yair Lapid in late June. The significant pay cut Frenkel will be taking, Lapid said at the time, showed he was committed to the public.

The JT caught up with professor Asher Blass, CEO of Israel’s Economic Research and Consulting Group, to find out how he thinks Frenkel will be for the Israeli economy.

JT: Why Jacob Frenkel?

Bass: [Netanyahu] wanted someone who had and an international name and reputation. … [Frenkel’s acceptance] proves that when Netanyahu really wants something, he can get it.

Explain the role of governor of the Bank of Israel. What does he really do?

In addition to being the governor, which is like being the head of the Federal Reserve of the U.S., he serves as an adviser to the government. It is a dual role; he not only sets monetary policy, but also has involvement in economic decisions. He has much more influence than your average bank governor.

That’s a lot to handle.
There is always kind of a tradeoff; to what extend can the governor really do both? Some governors embarked upon policies independent of the government — not what the government wanted. Then, they had less influence on the government’s [economic policies]. These are issues I think Frankel will be very capable of navigating.

Is it a good or bad choice for Israel — or something in between?
I think it’s good. He does have a track record and a lot of international experience. He was not the only possible candidate; there were other local candidates who would have been fine. Frenkel is an international player, and that is what Netanyahu thought was needed; it is possible he heard from foreigners that this was important to do. Certainly, he is a very high-caliber and qualified candidate.

How will Frenkel be different from Fischer?
It is not clear that they will be different. They have a bit of a different emphasis. Fischer is more of a moderate European social democrat. Frankel is more oriented to less government intervention, as he is more skeptical of [the government’s] ability to get things done.

How is the Israeli economy now, thriving or just surviving?
It is not great, not bad. … The Israeli economy didn’t have the downturn experienced by others, our unemployment rate is lower, and investments are reasonably OK. The main concern for the Israeli economy is how Israel’s standard of living moves in the direction of the U.S. and more developed countries in Europe. There is a constant gap in per-capita income; we have 40 percent less than what is observed in richer countries. It is not enough to grow 3 percent per year, while our population grows by 1.5 percent or more. The question is, can we bring acceleration growth and not just growth that isn’t slower than in the West?

Street talk is that Frenkel will focus on building a free-market economy. What does that mean?
That he is more skeptical of government spending [than Fischer]. I don’t think we will see a seismic shift or anything, but there is skepticism. The country clearly wastes money on government spending — defense, pension rights — some issues that are hard to address. … I think eventually we will need to address some of the spending, and he will be helpful in that area.

With this shift, for Americans, is now a good time to invest in Israel?
It depends in what you are investing. I don’t think it is a bad time or good time. There is some potential here. If the economy grows, many industries will be profitable. It could be that the real estate market has peaked, so it is not the best to time to invest in that. But, pundits have been wrong with that issue, too, so it could go either way.

What else do people need to know?
There is some potential in Israel that has not been unleashed, and the hope is that dealing with some of the structural problems and bureaucratic difficulties will unleash some of this potential. But, it is too early to say.

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