Stanley Fischer second term at Bank of Israel

By Simon Griver, March 18, 2010
Stanley Fischer: former World Bank vice president

Stanley Fischer: former World Bank vice president

Professor Stanley Fischer has agreed to serve a second five-year term as Governor of the Bank of Israel, providing a potentially enormous boost for the Israeli economy.

Such is his international eminence that when he accepted the offer to become head of the Bank of Israel in 2005, it was likened to Michael Jordan agreeing to play basketball for Maccabi Tel Aviv.

Yet Prof Fischer, 66, a graduate of the London School of Economics, struggled to settle in Israel. Disillusioned by the in-fighting between the Bank of Israel, Treasury and politicians, the betting at the start of 2008 was that the former World Bank vice president would not complete his first term, let alone consider a second term.

September 2008 and the near collapse of the US banking system changed all that. Suddenly everyone in Israel, and many in the world too, looked to Prof Fischer for leadership.

He did not disappoint, although he refuses to take credit for Israel's robust economic performance during the crisis, saying, "Israel went into the crisis in a very powerful position. The budget was balanced, we had a trade surplus and a strong banking system."

However, Prof Fischer does admit to adopting "unorthodox" monetary policies, which many feel diminished the effect the crisis on Israel's economy.

According to Shraga Brosh, President of the Manufacturers' Association, "Without Fischer's intervention we would have had a disaster."

Prof Fischer was able to reduce the damage to exports, the main influence of the global crisis on Israel, by purchasing an estimated $20 billion of foreign currency in 2009. He resisted vast pressure from the IMF and World Bank, and it is unlikely that another Israeli central bank head would have been allowed to pursue the programme.

"Unlike the US and EU which have huge domestic markets," he said, "Israel exports 45 per cent of its production and we cannot allow our currency to be too strong."

This curbed the strengthening of the shekel and meant Israeli exports fell by only 13 per cent in 2009. Consequently Israel recorded 0.7 per cent growth in 2009 compared with an average 3.5 per cent contraction by western countries. The Tel Aviv Stock Exchange rose 75 per cent in 2009, and is currently only 1 per cent short of its all-time high in 2007.

Prof Fischer has also been highly influential on international efforts to combat the global crisis. He was US Federal Reserve head Ben Bernanke's thesis adviser at MIT, and Prof Fischer's advocacy of low interest rates and government intervention was clearly heard in Washington.

It is unclear whether Prof Fischer will complete his second term. He is under pressure from his wife Rhoda to spend more time with his children and grandchildren who all live in the US.

But Prof Fischer feels that the economic crisis is far from over, and is reluctant to leave both Israel and the world economic stage at such a critical time.

Last updated: 4:40pm, March 18 2010