Few in Israel really know Mario Blejer, the man who was Prime Minister Benjamin Netanyahu‘s first choice to succeed Stanley Fischer as Governor of the Bank of Israel, an appointment that, as we know, did not come to fruition. Blejer was also Eduardo Elsztain’s right-hand man at an Argentinian mortgage bank, and one of the four board members at Dolphin, through which Elsztain, together with Moti Ben-Moshe, plans to take over IDB Holding Corp. Ltd. (TASE:IDBH). In an exclusive interview with “Globes”at the World Economic Forum in Davos, Blejer expresses confidence that IDB will be taken from Nochi Dankner, and even speaks about what he would have done at the Bank of Israel, had he been appointed Governor.
“Our partner is an honest man and a worthy partner, otherwise we would not have partnered with him,” says Blejer of Moti Ben-Moshe, regarding the lawsuit filed yesterday by Dankner to reassess the transfer of IDB to Elsztain and Ben-Moshe on the grounds that there were “criminal aspects” to Ben-Moshe’s dealings.
Did Dankner try to speak with you? To meet?
Blejer: “Not with me, and, as you know, ties between Dankner and Elsztain have been severed.”
Why? What happened there?
“Regarding the reasons ties between the two were severed, you should probably speak to them. I also don’t know exactly what happened there, and I don’t get involved.”
You didn’t speak with Elsztain about it?
“We have a tradition of working together. What we want to talk about, we talk about, and what we don’t want to talk about, we don’t. We don’t ask questions. We did not speak about it.”
Will IDB be yours in the end?
“The court’s decision will be honored.”
There are claims in Israel that you have no sentiment. That you will sell off IDB in parts.
“The opposite is true. We are still working on the business plan, so anyone who says we will break up the company doesn’t know what he is talking about, because he doesn’t know what we are planning to do. This is the most important holding company in Israel, particularly for Elsztain. To him, it is not only a business, it is important to him to revive and rebuild the most important holding company in Israel because it is Israel.”
So he's motivated by Zionism?
“A little. I wouldn’t say he would lose money out of Zionist motives, in other words, he will make decisions in order to make money. But he told me that it’s not just a matter of business, but also a service for the Israeli economy.”
Where has he been all these years? If Israel is so important to him, why didn’t he come sooner?
“While he didn’t invest in Israel, he did donate a significant portion of his income to Jewish foundations, such as the Lubavitcher Rebbe fund, yeshivas, and rabbinical schools…”
A haircut for Europe
Our discussion shifts to the global economy, a topic that is more comfortable and easier for Blejer to speak about. He is encouraged by the economic recovery in is the US, and mostly by the job market there.
Unemployment dropped because many gave up and stopped looking for work.
“Some of the people who left the workforce did so in order to study, not because they gave up entirely. They wanted to improve their skills, and it’s not only for the long-term. When they return to the job market, they will be integrated. I think that, overall, the recovery is real, unlike what we saw in previous years. That said, a faster growth rate would be preferable, in order to repair all the damage from the crisis. Growth needs to be accelerated, and that is challenging - monetary policy alone is not enough - reform is needed, and to address productivity.”
Where is the biggest problem in the global economy?
“The biggest problems are in Europe - there is more unemployment there, no growth, more debt relative to GDP than before the crisis. That is the number one problem in the global economy. I think that there is no solution in Europe without reducing debt, and the cure is insolvency, a 'haircut.' I recommend that southern European countries give their creditors a 'haircut.'"
That doesn’t sound so encouraging coming from the future owner of IDB.
“That’s different. One is a corporate debt, and the other is national.”
Learn from Chile
Blejer claims that expansionary monetary policy around the world causes a change in the distribution of income, which is unsustainable in the long term.
Essentially, what you are saying is that we impoverish the little-guy, who needs to take long-term mortgages and loans, and we transfer the money to the banks and companies to improve their balance sheets?
“That’s true, but these loans will also be cheaper. What harms ordinary people is that the low interest rate harms savings.”
Do you think the central banks are laying the groundwork for the next crisis?
“I think that keeping interest rates low for the long term will harm their independence.”
If you were a central banker, would you keep interest rates low?
“If I were Fed Chairman, then yes. In order to save the situation.”
And if you were not in the US, but in a country like Israel, which is dependent on the US in terms of the interest-rate differential, but, on the other hand, low interest rates harm it in other ways, such as the exchange rate?
"If you have too many goals and not enough means, you will not be able to attain all your goals. You cannot succeed without additional tools, such as limits on capital flows. In Chile, they decided that capital flows had to remain inside the country for at least one year. The way they encourage this is that investors were made to hold close to 20% of capital flows on deposit for a year.”
What about taxing capital flows? Are you in favor?
“You can also tax.”
How do you explain the Ministry of Finance and the Bank of Israel’s stubborn stance against taxing capital flows
“The Bank of Israel objected, at one time, to limiting capital flows. There are a few reasons for the objection. First of all, it has to be something temporary, but central banks know that sometimes temporary becomes permanent. Therefore, they don’t want to start with something that will be difficult to get out of. These limits are not optimal, and cause problems over time. If they are implemented and then lifted after, say, three years, that’s ok. If it goes on for years, people eventually find ways to circumvent the limits”
Nonetheless, Blejer supports limiting capital flows, and is of the opinion that it could solve the problem of the strong shekel: “I don’t understand why there is opposition to restricting capital. They say it doesn’t work, but experience around the world shows that it does. Otherwise, you simply lack the tools to deal with all the problems. If I were at the Bank of Israel, I would consider the matter; it is not possible to solve two problems with interest rates alone.”
You must be happy that you are not at the Bank of Israel, after being exposed to the uglier side of things, like the Turkel Committee.
“I don’t regret the experience. I met a lot of people. I was treated well, other than by a few people. I don’t think it’s a good process, but it did not hurt me so much.”
“Exports for housing - not a good option.”
After setting out his solutions for the exchange rate, Blejer explains how he would act to correct the housing market in Israel. Whereas former Governor of the Bank of Israel Stanley Fischer said that given a choice between exports and housing prices, he preferred exports, Blejer expresses a different position.
“Exchanging exports for housing is not right,” says Blejer.
What could be done differently?
“Again, if there is a problem, you need to use additional tools.”
Limits on mortgages? They already tried that at the Bank of Israel.
“No, no, I would do the opposite. I would give the weaker populations subsidized mortgages and, in parallel, I would tax more expensive apartments - say, $600,000 and up. I would not sacrifice housing for exports. I would subsidize the weaker populations and tax the stronger ones.”
Netanyahu supported your candidacy for Governor of the Bank of Israel, but you know that your solutions go entirely against his world view.
“I have already told him a few things he didn’t agree with.”
And what did he say?
“'Ok, we’ll have to talk about it.'”
On the subject of exports, Blejer has another recommendation: targeted support. “I would check if there is a particular industry that is specifically being harmed by the weak shekel, and I would deal with it on an individual basis.”
Blejer is not terribly troubled by the calls to boycott Israel due to the Israeli-Palestinian conflict, or by the call made by dozens of Israeli business people to advance the diplomatic process in order to prevent severe harm to the economy.
“Since I was a child, I remember the issue of Israel boycotts. There were always these claims that the economy would be harmed if there wasn’t a diplomatic agreement. It never happened,” says Blejer. “Why should it be different today, when Israel is a much stronger country? And, today, we also have the gas discovery, and Israel is much less dependent on the rest of the world than in was in the past. High-tech, which is a main growth engine, is not at all sensitive to the Israeli-Palestinian conflict.”
A moment before the interview ended, he decided to be politically correct: “On the other hand, it is always good to improve Israel’s diplomatic status in the world.”
Published by Globes [online], Israel business news - www.globes-online.com - on January 23, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014