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Bank of Israel Announces Stanley Fischer to Step Down

Bank of Israel Governor Stanley Fischer
Bank of Israel Governor Stanley Fischer said today he will step down on June 30. Photographer: Simon Dawson/Bloomberg

Bank of Israel Governor Stanley Fischer, credited by many economists for steering Israel through the global financial crisis, said he will step down in the middle of his second term. Bonds, stocks and the shekel fell.

Fischer, 69, told Prime Minister Benjamin Netanyahu today of his plan to leave on June 30, the bank said in a statement. No reason was given for his early departure. Zambian-born Fischer took the helm in 2005 after earlier jobs as No. 2 at the International Monetary Fund and vice-chairman at Citigroup Inc.

Replacing Fischer “is a major problem for Netanyahu as Stan has been a confidence-inspiring figure,” said Nobel economics laureate Robert Solow, one of the governor’s former teachers and colleague at the the Massachusetts Institute of Technology. “Everyone knows with Fischer nothing stupid was going to happen economically.”

Fischer has shifted the bank’s focus to employment and growth alongside price stability. That’s helped Israel’s economy rebound from the global crisis faster than most of its peers. Since 2009, output has expanded by 14.7 percent, compared with 10.7 percent in Australia and 3.2 percent in the U.S., according to the finance ministry. Israel’s main stock index has outperformed U.S. and European benchmarks in that period, adding more than 80 percent.

Bond Yields

Bond yields on the 2023 Mimshal Shiklit benchmark bond rose eight basis points, or 0.08 percentage point, to 4.08 percent, the highest since Dec. 4, at the close in Tel Aviv. The benchmark TA-25 stock index closed 0.9 percent lower at 1,186.50 and the shekel weakened 0.1 percent to 3.7293 a dollar at 7:13 p.m. in Tel Aviv.

A former economics professor at MIT, Fischer was U.S. Federal Reserve Chairman Ben S. Bernanke’s thesis adviser. From 1988 to 1990, he was chief economist at the Washington-based World Bank. At the IMF in the 1990s, he worked to resolve financial crises in Mexico, Russia and Southeast Asia. From 2002 to 2005, he was vice chairman of Citigroup.

In addition to his former student Bernanke, Fischer had close ties with other central bankers. Bank of England Governor Mervyn King said in a statement he has the “highest admiration” for Fischer and called his resignation “a loss to the central banking community.”

Kibbutz Stay

Fischer was approached in early 2005 by then-prime minister Ariel Sharon and Netanyahu, serving as finance minister, to succeed David Klein as central bank governor even though he wasn’t an Israeli citizen or resident.

Fischer’s connection with Israel dates back decades. He was a member of Habonim, a Zionist youth group, along with Rhoda Keet, his future wife, with whom he has three sons. In the early 1960s, he spent six months on a kibbutz on Israel’s Mediterranean coastal plain, where he combined learning Hebrew with manual labor. He conducts his official business in Hebrew with an accent that indicates his upbringing in southern Africa.

In 2011 Fischer put himself forward as an candidate for the leadership of the IMF. He was disqualified for the post as he was over the organization’s age limit of 65, and the position went to France’s Christine Lagarde.

Fischer’s “experience, his wisdom and his international connections opened a door to the economies of the world and assisted the Israeli economy in reaching many achievements, during a period of global economic crisis,” Netanyahu said in an e-mailed statement.

Governor Candidates

Fischer met Netanyahu at the prime minister’s office after his announcement and thanked him for the opportunity to run the central bank. “Our rapid economic growth in the years I was here was based on things enacted in prior years -- the stabilization program, reforms.”

Replacing Fischer will present another challenge for Netanyahu as he works to form a new government following national elections on Jan. 22, in which his Likud-Beitenu faction won the most parliamentary seats. The prime minister had called early elections after his coalition failed to agree on a budget for 2013.

“The timing is problematic on the back of elections,” said Elah Alkalay, vice president for business development at IBI-Israel Brokerage & Investment Ltd.

Two possible candidates to replace Fischer may be Avi Ben-Bassat, former finance ministry director-general, and Zvi Eckstein, ex-Bank of Israel deputy-governor, said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc.

Budget Cuts

Fischer said it was a priority for the next government to make budget cuts in order to reduce the deficit. Israel posted a budget deficit of 39 billion shekels ($10.43 billion) for 2012, or 4.2 percent of gross domestic product, more than double the government target.

The Israeli economy “is currently facing slow growth prospects and fiscal challenges and is in need of some structural measures that require decisive action,” said Tevfik Aksoy, chief economist for Central and Eastern Europe, the Middle East and Africa at Morgan Stanley in London in a statement. “The possible uncertainty regarding the future leadership of the Bank of Israel might hinder some of the required progress,” Aksoy said.

Fischer said in his resignation statement that one of his primary goals he had set for himself was passing a new Bank of Israel law in 2010 that established a monetary committee to set interest rates, rather than relying only on the governor. Some of Fischer’s other innovations have been aimed at making the bank more transparent, such as publishing minutes of rates meetings and holding quarterly sessions with economic forecasters.

Rate Surprises

“He has reformed the Bank of Israel,” said Solow. The governor had turned the bank “into an exemplary central bank with a decent research department and voice.”

The Fischer-led Bank of Israel has surprised economists in about a quarter of its rate decisions, more often than any other Organisation for Economic Cooperation and Development country for which comparable data is tracked by Bloomberg. Three of four rate cuts last year, the most recent on Dec. 24, weren’t anticipated by the median forecast in Bloomberg surveys.

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