No-one was surprised when Governor of the Bank of Israel Stanley Fischer and the Ministry of Finance, headed by Yuval Steinitz, wrestled like two street fighters this week. The Governor of the Bank of Israel wants to stipulate in the new Bank of Israel Law that the Ministry of Finance will, for the first time since the bank was established, the final arbiter of salaries at the bank. Minister of Finance Steinitz really dislikes the idea. "The Bank of Israel spat in our faces," Steinitz said this week. Stanley Fischer kept silent, but "his office" fought back. "To our regret, after three and a half years of attempts to advance the Bank of Israel Law through cooperation with the Ministry of Finance, we find yet again that the Ministry of Finance's perspective shows a lack of understanding of the central bank and its independence, and doesn’t serve the interest of the Israeli economy," was the response from there.
This war, coming just a short time after Fischer scored a crushing victory in the battle with Bank Hapoalim controlling shareholder Shari Arison, which resulted in the resignation of the bank's chairman Dan Dankner, brings out into the open what we have known for a long time but tried to deny during Fischer's four years as governor: that this scholarly, well-groomed, eloquent Zambian/American rates no-one besides himself.
"He gives us the feeling that we are the colonials and that he preaches to us. He is not prepared to accept any deviation from his path, and no-one can persuade him that he is mistaken. Even if he is right in practice, his conduct is very irritating," a capital market player said. "Besides, he is a fairly cold person, and with us he comes across as arrogant, in his manner, the way he dresses, and in his language. He's not our pal and we don't clap him on the shoulder, and that creates a certain sense of alienation."
Using the media
When Fischer was appointed to the post in 2005, we knew about him that he was obstinate and aspired to implement his policy come what may, in full. He came with an honorable record, as one who was First Deputy Managing Director of the International Monetary Fund and in his last post President of Citigroup International, with a monthly salary of $100,000. We gave him credit as someone who knows what he's doing. But no-one expected an attitude of no-one knows but me. No-one, at least in the government, thought that from the moment Fischer was appointed, his word would be law in the Israeli economy.
Fischer achieved his status as a shining star with considerable cunning. In his favor he has not just his record and his economic expertise. He also knows how to use the press and media for his purposes. Although he took care to cultivate an image of someone who avoids exposure and is even distant from the media, he has turned out to know how to enlist the media in a campaign for public support. "He seems less approachable and more distant than someone who calls a lot of press conferences and behaves familiarly with everyone. He doesn't call many press conferences, but somehow, he's always there, always intruding on our consciousness. Not a day goes by without some item about him and what he's doing. That's clever," said one businessperson.
When Fischer recently refused Prime Minister Benjamin Netanyahu's offer of the Treasury portfolio, he explained the somewhat strange decision by saying that he was "not a politician". That statement made quite a few of our political leaders laugh. "He's the most polished politician in Jerusalem," one of them said.
The man in the street trusts Stanley Fischer
For all that, Fischer doesn't annoy everyone. "He's portrayed, rightly in my view, as a lighthouse of stability, credibility, and honesty," said a senior business source. "He enjoys very broad public support, especially in the light of his conduct during the crisis. It wasn't the capital market or the Ministry of Finance that hailed him as the responsible adult. The man in the street trusts Stanley Fischer. The public supports Stanley Fischer. He is the Moses of the economy, its oracle."
In the storm of the global financial crisis, the governor grasped leadership of the economy, and gave the public the feeling that the wheel was in the hands of the most experienced driver. "He is worthy, level-headed, a superb professional, and when he acts, there is a sense that there is someone who can be relied on," a well-known economist said. A senior businessperson adds that the results of his policy are his best introduction: "He does extraordinary work, and we have the results that prove it. The world is afflicted by a huge crisis, and look what's happening here in Israel. Is there some total crisis? Are they doling out soup in the streets?"
On the whole, Fischer's term as governor went smoothly, apart from a few slight contretemps here and there. But just as his first term nears its end (it ends in May 2010, and could be his last), Fischer has managed to anger senior people in the economy and the Ministry of Finance, entering into disturbing power struggles, in the course of which he has given out broad hints that unless he gets his way, he will up and leave.
It began two years ago, during discussions on a new wage agreement for Bank of Israel workers. After a battle, the previous minister of finance, Ronnie Bar-On, and the then Supervisor of Wages Eli Cohen, were compelled to give way under Fischer's hinted threat of resignation and Prime Minister Ehud Olmert's backing for the governor. Cohen refused to sign the agreement. The minister signed.
Recently, when he laid out his monetary policy, which includes a plan of foreign currency and government bond purchases, Fischer drew sharp criticism. Senior Ministry of Finance officials accused him of, among other things, flooding the economy with money. One of his critics even dubbed him "The lord of the manor from abroad, who teaches us all economics, and even sets conditions if you don't give me this that and the other, I'm out of here."
A senior capital market figure describes the way it works. "Fischer has never said 'I'll resign'. He says things from which everyone can understand what he means. When he throws down the possibility or the hint of a divorce, everyone is seized with horror, and they immediately accede to what he wants. Is the horror overdone? Probably yes, but it's still good to know that he's on our side, and not on the other side of the ocean."
These days, Fischer doesn't threaten resignation. Now he threatens not to stay on for a further term. And what are the conditions he sets for remaining "our friend" for another term? First of all, passage of a new Bank of Israel Law that takes control of Bank of Israel salaries out of the Ministry of Finance's hands. However, some of those who know him believe that even if the law is passed, Fischer will leave his post at the appointed time. Fischer has also made his remaining conditional on transfer of the Finance Ministry's Capital Markets, Insurance and Savings Division to him. His argument, which annoys quite a few people, is that only the Bank of Israel knows how to regulate.
Resignation threats Bibi won't take the risk
Will the Ministry of Finance and the prime minister surrender to Fischer's demands this time too? It seems that Minister of Finance Steinitz cannot concede the demand on salary control, if only because of the war that broke out when he saw the Bank of Israel's draft bill. "When you climb a tall tree, it's hard to find a way down. Ego and politics are involved here, and that's a serious problem. The question s how far is Steinitz led, and whether Bibi will make the decision for him," a well known economist says.
A capital market source: "In the end, the decision will be Bibi's, not Steinitz's. To let Fischer leave his post because of a crisis would be a considerable political earthquake, because he has very strong public standing.
"Everyone capitulated in the past when he presented them with ultimatums cleverly and politely, and it may be that Steinitz will capitulate too, and if Steinitz doesn't, Bibi surely will," another market source says. "The way things line up now, with the current political and diplomatic situation, I don't believe Bibi can afford to let Fischer leave. He will be prepared to sacrifice a great deal for quiet on the Fischer front."
In recent years, Israel has sheltered under Fischer's reputation and international standing, and it appears that Netanyahu cannot take the risk involved in that reputation fleeing Israel on his watch. "It would damage Bibi's image. Apart from anything else, he will suffer electoral damage if he lets Fischer go. Bibi won’t dare take the risk," the source adds.
There are also those who think that, this time, it will be Fischer who concedes. "The Ministry of Finance cannot agree to Fischer's demand on salaries control, because although the Bank of Israel is considered an independent body, its employees are public sector workers, and their salaries cannot be set in isolation from what is happening in the Israeli economy. Fischer will have to give in," a senior capital market source says.
He believes that, this time round, the Ministry of Finance will gain public support against Fischer. "The public is fed up of hearing about the huge amounts paid at the Bank of Israel, and the bonuses, vacations, sabbaticals, and God knows what else. Although Fischer really is borne aloft on inexplicable waves of adulation and enjoys absolute confidence on the part of the public, on this matter the public will be with the Finance Ministry."
The response to the article made on Fischer's behalf was "no comment."
Published by Globes [online], Israel business news - www.globes.co.il - on June 11, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009