Growth is good, but not good enough
Shmuel Ben-Arie of Pioneer Financial Planning: Frenkel previously worked well with Prime Minister Benjamin Netanyahu.
"Investors and capital market players in Israel and around the world will greet the appointment of Jacob Frenkel as the governor of the Bank of Israel with a sigh of relief. I therefore believe that both the stock market and the bond market will welcome the decision, but it should be remembered that the bond market is more influenced these days by US bond yields than by the appointment of the old-new governor," says Pioneer Financial Planning local market research manager Shmuel Ben-Arie.
"For local investors, the appointment will be welcomed, since Frenkel previously worked well with Prime Minister Benjamin Netanyahu, and because at the end of his previous term of governor of the Bank of Israel, it was obvious to everyone that he had been one of Israel's successful and best governors. For foreign investors and capital market players, too, this is a calming and promising appointment. Frenkel was the economic counselor and director of research at the IMF even before he served as governor of the Bank of Israel, earned the praise of the major industrialized countries, and played a significant role in the construction of the international monetary system," says Ben-Arie.
Ben-Arie points out, however, that "Prof. Frenkel served in a senior position at AIG when it collapsed, after it assumed too much risk in the derivatives and real estate markets, and was nationalized by the US government. In effect, the US taxpayer paid for its mistakes. There is almost no question that this stain from his past will come up again and again. Nonetheless, I believe that Prof. Frenkel has the skills and experience needed for the job, and he will not need a long overlap period."
Prof. Elise Brezis, the director of the Aharon Meir Center for Banking at Bar Ilan University and a former advisor at the Bank of Israel, says, "This is good news for the Israeli economy. When he served as governor, Frenkel showed that he was ready to take bold decisions. He led the liberalization of the financial system, and took a series of measures which made the Israeli capital market more open to the world. Frenkel, as he has proven in the past, is an assertive man who is not afraid of big changes, and when we have a green finance minister, this is a helpful move. Frenkel knows the rules of the game well, he won't hesitate to influence Ministry of Finance policy. And if we're talking about his past, it can be said of his time at AIG that once bitten, twice shy, and this is exactly what will enable him to be tough with Israeli banking. The only thing which can be held against him is that executive pay in the financial system and inequality in Israel are not the kind of things that will be on his agenda."
Ayalon Group chief strategist Yaniv Pagot says, "This is an unexpected appointment by Prime Minister Benjamin Netanyahu, who seems to have made every effort to import a big economic name with an international flavor. When his efforts failed, he decided to appoint to the job Prof. Jacob Frenkel, who meets this criterion, but who is not a problem-free appointee."
Pagot warns of the negative consequences of the appointment, saying, "Frenkel's appointment creates great uncertainty about the future of Deputy Governor of the Bank of Israel Karnit Flug, because it indicates a lack of confidence on the part of the prime minister in her ability to lead the central bank. Barry Topf, Fischer's buyer of foreign currency, is leaving his post this year, as is Bank of Israel spokesman Yossi Saadon. This means that Frenkel faces a management task of establishing a new, fresh, and elite team around him. Frenkel will have to work harmoniously with the Monetary Committee that Fischer has bequeathed him, and which did not exist the last time that Frenkel was governor. This is not an easy challenge, and is liable in certain circumstances to cause initial friction.
"The Bank of Israel's foreign currency reserves are close to $80 billion, and it is not clear whether the old-new governor will act as his predecessor did and will protect Israeli exports against an aggressive strengthening of the shekel," adds Pagot.
Pagot concludes, "Another major challenge facing Frenkel will be to help the government to deflate the housing bubble and prevent damage to the financial system. The Bank of Israel under Fischer gave up trying to cool the housing market, and has passed this hot potato to the government, which is dragging its feet on the matter."
Published by Globes [online], Israel business news - www.globes-online.com - on June 24, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013
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