July 31 (Bloomberg) -- Leo Leiderman, chief economist at Israel’s largest bank, has been nominated as the next Bank of Israel governor, stepping into the breach left by first-choice Jacob Frenkel when he withdrew his candidacy this week.
The appointment was announced today by Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid in a text message, and acting Governor Karnit Flug immediately resigned after being passed over for a second time. Leiderman, a former head of the central bank’s research department, succeeds Stanley Fischer, who stepped down June 30.
The shekel maintained gains after the announcement, up 0.1 percent to 3.5729 per dollar at 6:22 p.m. in Tel Aviv.
“I’m excited to return to the Bank of Israel and I will work to help the Israeli economy confront the challenges that we face,” Leiderman, 62, said in a text message.
He has been asked to take over the bank at a time of slowing economic growth and low inflation. Observers will be watching to see whether Leiderman, described as a “key player” in Frenkel’s hawkish policies in the high-inflation 1990s, will now focus on growth and job creation.
Leiderman’s nomination must be approved by a panel that vets senior civil appointments and the cabinet.
Frenkel Hit Bump
It was during his confirmation process that Frenkel’s nomination snagged. While the vetting committee was reviewing his candidacy, the Haaretz newspaper reported that Frenkel, a former governor, had been briefly detained in Hong Kong seven years ago after he left an airport shop with an item that had not been paid for.
Frenkel, who called the incident a misunderstanding, said July 29 that he no longer wanted the job after being subjected to an “avalanche of abuse.” Netanyahu and Lapid promised to swiftly find a replacement.
Avia Spivak, a former deputy governor, praised the new candidate, who has most recently led the economics department at Bank Hapoalim Ltd. He earlier worked for Deutsche Bank AG.
“He has a very good grasp of monetary theory,” said Spivak, now an economics professor at Ben-Gurion University of the Negev. “We’ve seen from the experience of other central banks that it is important to know well how monetary policy works and how markets react.”
Leiderman’s experience at the Bank of Israel, and his work at Bank Hapoalim, “provide very good background” for the job, Spivak said.
If confirmed, Leiderman will take the tiller at the bank at a time when it is contending with slowing growth, a strengthening shekel, sluggish global demand and surging housing prices.
The Bank of Israel left the benchmark interest rate unchanged at 1.25 percent at the end of July, after lowering it gradually from 3.25 percent since 2011 in an effort to spur growth in the export-driven economy. It also announced in May that it would buy more than $2 billion by the end of the year, citing the shekel’s appreciation and the downward revision in global growth forecasts.
Leiderman emigrated to Israel from Cordoba, Argentina, at 17 and received his bachelor’s degree in economics at The Hebrew University in Jerusalem, before earning his master’s and doctorate at the University of Chicago. He published the book, “Inflation and Disinflation: The Israeli Experiment,” in 1993.
After teaching economics at Tel Aviv University, Leiderman joined the Bank of Israel as research director in 1996 when Frenkel, known as an inflation hawk, was in charge. He left the post four years later after Frenkel stepped down.
“Leo Leiderman was a key player during Frenkel’s tenure,” Haim Barkai Sapir and Nissan Liviatan wrote in a book about Israeli monetary policy. “He was much involved in Frenkel’s policy decisions.”
The Bank of Israel job opened in January after Fischer, 69, announced he would leave at the end of June, midway through his second, five-year term. He has been credited with helping Israel to weather the global economic crisis better than most developed countries. Between 2005, when Fischer took office, and last year, the economy grew an annual average of 4.3 percent, he told parliament’s finance committee on June 3.
His dual focus on employment and growth alongside price stability resembled the Fed’s model and marked a shift at the Bank of Israel, where previous governors placed a European-style emphasis on inflation.
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