Incoming Israeli Prime Minister Benjamin Netanyahu wanted the internationally respected Bank of Israel Governor Jacob A. Frenkel as his Finance Minister. But political considerations prevented him from giving Frenkel the appointment. Still, Netanyahu seems determined to make the 53-year-old Frenkel his economic point man.
The new Prime Minister is appointing Frenkel to a second five-year term at the bank and putting him in charge of a U.S.-style Council of Economic Advisers. This combined portfolio should make Frenkel a major player in the Netanyahu administration.
Frenkel will likely be asked to juice up Israel's long-stalled privatization program, which Netanyahu has taken away from the Finance Ministry and brought to his own office. Netanyahu wants to privatize some 50 companies over the next four years. Frenkel is also pushing for major budget and tax cuts. The central banker recently burnished his credentials as an inflation fighter when he raised the key discount rate to 17% to combat rising inflation--which now stands at 15%.
Though Israel has made substantial progress in recent years, Frenkel still thinks the government accounts for too much of the economy. He wants to see taxes cut and the government's role in the economy reduced from the present more than 50%.
DOVISHNESS. Frenkel's role will probably be enhanced by the good working relations he has with Dan Meridor, the Likud politician who wound up with the Finance portfolio. Meridor's wife, Leora, was until recently the bank's head of research.
But Frenkel may clash with other heavyweights, including Ariel Sharon, whom Netanyahu is probably going to appoint to a newly created post of Infrastructure Minister. The former general and other hardliners will want to pour funds into settlements in the West Bank and other pet projects. Frenkel will argue that Israel cannot afford such efforts. Frenkel also differs from the Likud hardliners in his dovishness on relations with the Arabs. "In order to have sustained economic growth, the peace process must continue," Frenkel says.
That is quite different from the hardline message that Netanyahu put out during the campaign. Nevertheless, the Prime Minister apparently wants to make economic reform a high priority, and he is willing to put up with some friction to get results.