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August 13, 2013

The Bank of Israel Joke is On Us

http://www.jewishjournal.com/blog/item/the_bank_of_israel_joke_is_on_us/

Photo

The outgoing BOI Governor, Stanley Fischer
Photo by Reuters

My NYT-HIT article from last week is about the Bank of Israel, and about Israel's difficulties in finding a Governor for it. Here's a different version if this article. Since it was written, the PM has sent the names of four more candidates for consideration, but we don't yet have a governor for the bank:

At the moment, Israel doesn't have a Bank of Israel Governor. The outgoing governor, Prof. Stanley Fischer, is long gone. His deputy, Karnit Flug, is on her way out, having realized that she will not get the appointment. And in the last two weeks, Prime Minister Netanyahu's first and then second picks for this important job dropped their names from consideration. The first one, Prof. Yaakov Frenkel, after almost a month of rumors related to a weird incident, seven years ago, at a Hong Kong airport duty-free shop. The second one, Prof. Leo Leiderman, after just two days, because of – well – we don't know exactly why. We do know, though, that on the day after his appointment was announced it was revealed that he used to have consultations with an astrologer on a regular basis, and that the day after his withdrawal it was revealed that there were also rumors, or allegations, or accusations, related to sexual harassment in his past.

A BOI governor is appointed by the Prime Minister after consultation with the Finance Minister. But like six other "senior" appointments – the military chief of staff, the head of Mossad, the chief of police and others – the nominee also needs a stamp of approval from a four-member "advisory committee on senior appointments", chaired by retired Supreme Court Justice Yaakov Turkel. This committee was established by the government (originally in 1999, in its current form in 2006), and was put in charge of preserving the integrity of the public service. This committee, as Haaretz Daily favorably describes it, is a "public purifier in the sphere of ethical standards", a deterrence against corruption and conflicts of interests. It is also, as the just-a-bit-more-skeptical editor of the economic daily Calcalist describes it, an invitation for "character assassination".

The committee, having to deal with the vaguely defined "integrity" of a candidate, has become a magnet for dirt: no candidate has been able to cruise through it without having to deal with anonymous accusations and juicy slurs. And while the committee doesn’t quite have the investigative tools with which to examine every single rumor or allegation, it does have to pay attention and question the candidates about such things.

For example: what happened seven years ago, when Prof. Frankel, a distinguished economist, left a duty-free shop without paying for an item? Was this a "misunderstanding" as he claims? And what was the exact role of a mysterious Canadian woman in this incident? The committee got a tip, and had to delve into this long-forgotten matter. Naturally, the media loved the scandal. Obviously, the candidate didn't love it as much. And why did Prof. Leiderman leave his post at Deutsche Bank? Did he have to leave to avoid a sexual harassment scandal? Again, the committee was getting ready to delve into the matter. Again, the media loved the scandal and the candidate not as much.

In Israel people started joking that every woman should appoint her spouse to this job if she really wants to know everything there is to know about him. Obviously, the Prime Minister was embarrassed, twice, and is already getting his fair share of mockery. Yet the joke is on us: Israel needs a BOI governor and it doesn't have one. Maybe it's because the PM didn't pick the right people, but maybe it's because what we're looking for, a person that is a highly accomplished economist and has an unambiguously clean past that can withstand any rumor, is not easy to find. Maybe the common view – that we can surely find someone that is both moral and competent – is only true when our definition of morality doesn’t become a quest for an angel. Maybe the Prime Minister and the Finance Minister were right when they said after Freknel's withdrawal that "we are not far from the day that nobody will want to go near public life".

Both were ridiculed by politicians and pundits explaining that "Israel has changed" and that there's a need for more "transparency" when senior appointments are made. But here's the problem: the public can easily form an opinion on a candidate's general "moral" behavior: Would you approve of a candidate that regularly goes to an astrologer (it's a little disturbing)? Do you care if the candidate forgot to pay for an item seven years ago (I'm ashamed to say: I don't)? How sensitive are you about questionable sexual advances (it depends on the details)? But it is much harder if not impossible for the public to asses the professional qualifications of a candidate for the job of BOI governor. This means that the public only gets half the picture – what we gained by not having this or that person of supposedly questionable morality – but misses the other part – what we lost by having to skip the top two candidates, and all those who refused to even consider the job because of the messy process (or because of other reasons). 

Many solutions are now being proposed to this problem, from having more nuanced specifications in the law governing the appointment, to having American-style public hearings at the parliament for the candidates. All these would indeed make the process more transparent. They will not answer the more important question though: what misdemeanor should disqualify a professionally competent candidate from being a Bank of Israel governor?

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