The appointment of Jacob Frenkel as the governor of the Bank of Israel has been warmly welcomed by investors and analysts in Israel and abroad, who regard him as the kind of international heavyweight who can fill the shoes of the departing Stanley Fischer.
Frenkel, currently chairman of JPMorgan Chase International, brings a briefcase full of glittering credentials to his new post. He was Vice Chairman of American International Group from 2000 to 2004, Chairman of Merrill Lynch International, as well as Chairman of Merrill Lynch’s Sovereign Advisory and Global Financial Institutions Groups. And he was himself head of the BOI from 1991-2000.
Prof. Elise Brezis, director of the Aharon Meir Center for Banking at Bar Ilan University, told Globes: “This is good news for the Israeli economy. Frenkel, as he has proven in the past, is an assertive man who is not afraid of big changes, and when we have a green Finance minister, this is a helpful move.
Eldad Tamir, CEO of the Tamir-Fishman Investment House, in a statement to Haaretz praised Frenkel as the “right choice by every measure. His authority is recognized by both the government and by the public and makes up for the Finance minister’s lack of experience. He will also be a powerful figure in international forums. He went through some difficult tests with the Israeli economy and passed them. In short, Bingo!”
Haim Cohen, CEO of Dun & Bradstreet Israel, called it an “excellent appointment. We’re talking about a professional who has been acknowledged around the world, an Israel Prize winner, a senior banker of great experience who has coped in recent years with the challenges of exiting the global crisis.”
However, there was a cloud or two on the capital horizon.
For one thing, Frenkel’s world-beating resume is not without its dark spots. Pioneer Financial Planning local market research manager Shmuel Ben-Arie pointed out that he “served in a senior position at AIG when it collapsed, after it assumed too much risk in the derivatives and real estate markets, and was nationalized by the U.S. government. In effect, the U.S. taxpayer paid for its mistakes. There is almost no question that this stain from his past will come up again and again.”
Ayalon Group chief strategist Yaniv Pagot cautioned that the appointment may not bode well for the BOI’s future. “Frenkel’s appointment creates great uncertainty about the future of Deputy Governor of the BOI Karnit Flug, because it indicates a lack of confidence on the part of the prime minister in her ability to lead the central bank.” Other top-level executives are leaving this year, posing a challenge for Frenkel to create a new managerial staff.
Pagot also noted the uncertainty over whether Frenkel will continue his predecessors defense of the dollar against a surging shekel, a chronic worry for Israeli exporters.
At Halman-Aldubi, they observed that Frenkel’s forte, controlling inflation, is not what the Israeli economy needs right now, which is slowing growth.
“Prof. Frenkel is best known as someone who battled inflation, even at the cost of growth,” the statement said. “Right now, in his new term, he will be forced to act differently and to direct a more expansive policy, otherwise the economy is likely to go into a recession.”
The new chairman may also find himself in the crosshairs of the advocates of financial reform. As Brezis put it, “executive pay in the financial system and inequality in Israel are not the kind of things that will be on his agenda.”
Given the mood in Israel these days, such items may soon find their way onto his agenda.
Perhaps the most discordant note, however, was heard from Shmuel Slavin, who was director-general of the Finance Ministry when Frenkel was running the BOI.
“I think Frenkel only sees the economy and sees the people less. The policy of high interest rates which he led enriched the rich and made the poor poorer,” Slavin said.
“I’m afraid he will draw the economy backward … I’m very worried,” he said.