Jacob Frenkel blinks first

Adrian Filut

The public will not accept that the man who runs the country's monetary policy be a man suspected of financial misdeeds.

1. Let us start from the end: Jacob Frenkel will not be the next governor of the Bank of Israel. This is chronicle foretold which began on the evening of July 24, when his name was revealed to the public. It is not because of the suit carrier that he took from the Hong Kong duty-free shop, payment for which resulted in an "unfortunate misunderstanding" as he put it. If there was an incident that disqualified the appointment, it was related to the quarter million shekels he took in illegal salary, for which he was lambasted by the State Comptroller. Presumably, it was everything together. The Supreme Court judges (the appointment would unquestionably have reached the High Court of Justice) would not have allowed the appointment to go forward. Everyone has realized for a while that Frenkel would not be the governor. The only questions left were how to step back from the brink and who would take the first step.

2.The eruption of the "perfume affair" (which turned out to involve a suit carrier) over Frenkel's appointment to the governorship occurred in a hidden sophisticated poker game between the four main players in the case: Frenkel, committee for the appointment of senior government chairman Yaakov Turkel, Attorney General Yehuda Weinstein, and Prime Minister Benjamin Netanyahu.

For over three weeks the question was who would blink first. Frenkel did not want to give up, and later he could not. Giving up would be seen by the public as admitting to an immoral act, which would lethally damage his image. Turkel felt very uncomfortable about approving this appointment, and understood that he was risking serious embarrassment by the High Court of Justice (his second embarrassment after the disqualification of Maj.-Gen. Yoav Galant's candidacy for the IDF chief of staff). He did not want to take the risk. On the other hand, he did want to be the man to disqualify Frenkel. He lacked the evidence to do so, and as someone who knows the retired judge, he is a fair and merciful man.

Netanyahu did not want to ask Frenkel to step down, after appointing him in the first place. Had Netanyahu done this and the media learned of it, he would have been harshly assailed and the prime minister's problematic relations with his closest aides would have been dragged up. Moreover, had Netanyahu asked Frenkel to step aside, everyone would have wondered why he was appointed in the first place.

Weinstein did not want to approve the appointment. He also greatly feared the High Court judges and embarrassment at their hands. But he did not want to again be accused of running the country or that legal advisors had conquered it. He was already seeing everyone imploring him, 'Maybe you should run the Bank of Israel? You already run the entire system.' Every day that passed, one thing became increasingly clear: time was against Frenkel.

3. In the end, Frenkel blinked first. He did not hold up. The war of attrition against the rumors defeated him. Some of the reports were extraordinary in their aggressiveness and severity. Frenkel is not a child, and knows how to fight, but it is important to remember that he left the country as "a king of Israel", but realized that since his nomination as governor, he was no longer wanted here; he is an outcast.

His treatment is what hurt Frenkel the most. Public love and adoration are vital to him. He may also have felt that the "perfume (suit carrier) affair" was not the last hurdle in the long and exhausting campaign organized by his enemies, but only the opening shot. The flood of stories reaching journalists' ears in the past few weeks were waiting for confirmation, for a response, before appearing in print or in a document.

4. Frenkel saved himself and avoided a major headache. It is not certain whether he would have survived in the Israel of 2013. First, he would have been constantly reminded about the State Comptroller report and the suit carrier affair. Moreover, he might have been able to adapt to deal with the challenges of the Israeli economy in 2013, but could he deal with Israeli society of 2013, after the social protest and subsequent flood of sensitivities. His image as a man of Wall Street would have been an impediment.

Frenkel is utterly unfamiliar with the public dialogue that has emerged in the past few years over the increasing poverty and inequality. Netanyahu has marked as an enemy the populist dialogue that has taken over the socioeconomic debate. This is a wild attack against the business community, especially against financial institutions, against profits, and against profligate salaries.

Netanyahu's aides say that Frenkel was appointed as an "army chief of staff" in this war. But Frenkel was an executive in these financial institutions that made the profits that are subject of criticism, and he personally made the salaries that are a source of real public opprobrium in Israel. Frenkel would have found it very hard to carry out his duties in the wake of the scandals.

5. Frenkel's sad story should teach us some lessons. Frist, and the most obvious, is that the public dialogue has radically changed since the social protest. What was is no longer, and there are things that the Israeli public will no longer accept. The public will not accept that the man who runs the country's monetary policy be a man suspected of financial misdeeds and someone who did not manage the public's money as he managed his own, as described in the harsh State Comptroller report.

The most important leson is that in the Israel of 2013, it is unacceptable that there is no orderly process for choosing the governor of the Bank of Israel. It is unacceptable that the prime minister will wake up one morning and chose someone dear to him, without clear conditions, in an opaque and hasty process.

Another lesson for the prime minister: he should not wait for overtime to make important appointments, as this is liable to cost him, the public, and the economy, dearly. Netanyahu's conduct in this tale was an embarrassment. It is not how a leader behaves.

In conclusion, yesterday, the Bank of Israel's Monetary Committee met and decided not to again cut the interest rate. Every capital market analyst who read the announcement believes that the explanation that the committee members gave for the decision was far more suited for a decision to cut the interest rate. It is completely clear that the committee members avoided monetary activism because they are waiting for the next governor.

But the economy cannot wait. Growth is slowing, the labor market is stagnant, the shekel is strengthening and hurting exports, and the economic leadership is new and inexperienced.

Published by Globes [online], Israel business news - www.globes-online.com - on July 30, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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