Aug. 3 (Bloomberg) -- Leonardo Leiderman’s withdrawal as a candidate to be Bank of Israel governor, the second contender to drop out in a week, dealt a blow to Prime Minister Benjamin Netanyahu in his search for a replacement for Stanley Fischer.
Leiderman, head of the economics department at Bank Hapoalim Ltd., removed himself from consideration, according to a text message yesterday from the prime minister’s office in Jerusalem. It didn’t give a reason for his decision.
The announcement leaves Netanyahu still looking for a central bank governor six months after Fischer, 69, announced that he planned to step down early. Jacob Frenkel announced on July 29 he was pulling out because the atmosphere surrounding the vetting process was too “poisonous.” Netanyahu’s decision to tap Leiderman, 62, for the job prompted acting Governor Karnit Flug to tender her resignation. Flug will remain acting governor until a replacement is named, the bank said.
“This is a major embarrassment for Netanyahu,” said Abraham Diskin, professor of political science at the Hebrew University of Jerusalem. “While the domestic political fallout will be limited, it will likely raise questions internationally about his handling of the economy.”
The cost of protecting Israeli bonds against default rose to the highest level in two weeks. Five-year credit-default swaps rose 0.66 basis points to 111.66, the highest since July 15, according to prices compiled by CMA.
The shekel was little changed at 3.5668 per dollar at the close on Aug. 2.
“Bank of Israel Governor nominee Leo Leiderman informed Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid a short time ago that he is withdrawing his candidacy,” the text message from the prime minister’s office said. Leiderman was scheduled to meet with a government vetting committee on Aug. 4.
Israel’s $250 billion economy rebounded from the global crisis faster than most peers. Between 2009 and 2012, output expanded 14.7 percent, compared with 3.2 percent in the U.S. and a contraction of 1.5 percent in the euro region, the Finance Ministry said in a January report.
Growth will probably slow to 3.2 percent in 2014 from 3.8 percent this year, as sluggish global demand cuts into exports, the Bank of Israel said in June. It has been gradually reducing interest rates from 3.25 percent in 2011 to the current 1.25 percent, in an effort to moderate shekel gains and boost growth in the export-driven economy. The bank in May announced a plan to purchase $2.1 billion of U.S. dollars by the end of the year.
Israel’s Channel 10 news said Leiderman’s candidacy was damaged by a report by the television station earlier this week that he regularly consulted with an astrologer. The Israeli station also said the government committee vetting Leiderman had received letters raising questions about his tenure as head of emerging-markets research at Deutsche Bank AG a decade ago.
Calls to Leiderman went directly to a voice-mail, and an e-mail sent to him did not get a response. Mark Regev, a spokesman for Netanyahu, said he would not comment beyond the official announcement.
“It turns out that professors of economics are a pretty colorful and wild bunch,” Lapid said in a message to some of his political colleagues, Channel 10 reported.
Frenkel, 70, withdrew after the Haaretz newspaper reported he was detained in Hong Kong seven years ago after allegedly leaving an airport shop with an item that hadn’t been paid for. Frenkel said the incident was a misunderstanding that was fully clarified without further consequence. He said he no longer wanted the job after being subjected to an “avalanche of abuse.”
Flug said on July 31 she would stay at the bank for a month to help Leiderman get to grips with this job.
“Netanyahu and Lapid should go to the home of Dr. Karnit Flug to apologize and beg her to take on the job of Bank of Israel governor,” said opposition Labor party leader Shelly Yachimovich, according to the Haaretz daily. “A bunch of bad and bizarre decisions that Netanyahu and Lapid took just so as not to appoint a woman more suited for the position is starting to look like one big farce.”
Diskin at the Hebrew University said the problems in selecting a new governor may have been compounded by Netanyahu being distracted by other issues.
“Netanyahu is like a juggler overwhelmed by all the balls he is carrying, and he’s been distracted by other major decisions he’s had to make on the Palestinians, Iran, etc.,” he said. “Choosing the Bank of Israel governor is done in coordination with the finance minister, and Netanyahu has in Lapid someone from a different party he doesn’t really trust and is completely new to economics.”
Lapid, a former journalist, heads the Yesh Atid party, the second biggest faction in the coalition after Netanyahu’s Likud.
Netanyahu’s failed efforts to select a new central banker echo the difficulties he encountered in 2011 in choosing the head of Israel’s military. His initial selection, Yoav Galant, was forced to step aside in favor of Benny Gantz after questions were raised over allegations Galant had seized public property for his personal use.
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