August 5, 2013 4:26 pm

Search for Bank of Israel chairman intensifies

Central bank appointments rarely arouse much tabloid passion but the search for a Bank of Israel chairman has brought that and much more, including poison-pen letters and accusations of sexism, professional misconduct and petty crime.

Benjamin Netanyahu, prime minister, and Yair Lapid, finance minister, are facing withering criticism from political opponents and the media as they scout for a central bank chief for the third time in five weeks, more than a month after Stanley Fischer stepped down, leaving Karnit Flug, his deputy, as caretaker. Leo Leiderman, chief economist at Israel’s Bank Hapoalim, pulled out of the running on Friday for personal reasons, just days after the withdrawal of Jacob Frenkel, the first candidate for the job.

The disarray has prompted calls from government critics to overhaul the vetting procedures for senior civil service appointees. Israeli media reported on Monday that Mr Netanyahu was considering new procedures that would see him and the finance minister submit several candidates’ names to a vetting committee, rather than one at a time. The prime minister’s office declined to comment.

The affair has also raised questions over the judgment and competence of the Israeli prime minister at a time when he faces challenges from opponents in the Knesset, rivals and his own Likud party. Critics point out that a brush with the Hong Kong police that sank Mr Frenkel’s candidacy could have been uncovered with a Google search.

“They had almost half a year since Stanley Fischer said he was resigning to do this and didn’t prepare the candidates or do the background checks and the kind of preparatory work you would expect,” says Shlomo Avineri, professor of politics at Hebrew University in Jerusalem. “It blew up in their face.”

Reacting to Mr Leiderman’s withdrawal of his candidacy, Mr Lapid, a former television presenter and journalist, reinforced his reputation as an economic ingénue when he made light of the struggle to fill the Bank of Israel post on his Facebook page, saying that he yearned for “solid and stable” people such as Yatzpan and Baraba, two popular Israeli comedians.

Among businesspeople, the flap has created worries about a vacuum of financial leadership at a time when Israel’s economy is slowing and populist and leftwing critics want deep changes in the pro-business economic consensus that has coincided with Mr Netanyahu’s time in office.

“I see it as part of a negative wave of populism, whereby decisions are made according to how they are perceived in the press, not for any other good reasons,” says Eldad Tamir, chief executive of Tamir Fishman, a Tel Aviv investment house. “When you start to manage important decisions according to how they are written up in the press, you get to a chaotic situation where nobody rules.”

They had almost half a year since Stanley Fischer said he was resigning to do this and didn’t . . . do the . . . kind of preparatory work you would expect

- Shlomo Avineri, professor of politics, Hebrew University

Choosing a successor for Mr Fischer, widely praised during his eight-year tenure, would never have been easy. But when Mr Netanyahu and Mr Lapid tapped Mr Frenkel, a former Bank of Israel governor and international banker, market analysts welcomed the news. Mr Frenkel’s candidacy then hit serious snags after Haaretz, the left-leaning newspaper, reported on an incident in 2006 when he was accused of stealing from a duty-free shop in Hong Kong, saying the vetting committee had asked him for more details.

He was never charged and later released by police with an apology, but he withdrew his candidacy, deploring in remarks to Israel’s Channel Two what he called “insults, calls that tried to hurt my professional reputation and my reputation for honesty”.

When Mr Leiderman was approached for the job, deputy governor Ms Flug – long seen as a qualified contender – announced she would leave the central bank. Government critics, including Shelly Yachimovich, Labour leader, accused the government of sexism.

Mr Leiderman’s candidacy had been expected to pass easily, but on Friday the Argentine-born economist said that after consulting his family, he would rather stick with his jobs at Hapoalim and Tel Aviv University.

His withdrawal came after the vetting committee received at least one tip-off saying it should investigate the circumstances in which he left Deutsche Bank, where he worked as head of emerging markets research a decade ago. Haaretz reported that a sexual harassment claim was the reason for his resignation, but provided no details.

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Mr Leiderman, who did not respond to requests for comment, later told Israeli news website the Post that no complaint of any kind had been filed against him during his career and that he dropped out to save himself from “a nightmare”. Deutsche Bank did not comment on the reason for his departure.

Amid all the airing of alleged dirty laundry, there has been little serious discussion about the candidates’ job credentials, or the economic challenges they would have to address, including a slowing economy, soaring house prices and low job market participation rates among Arabs and ultra-Orthodox Jews.

The circumstances of Mr Frenkel’s Hong Kong airport incident were aired in the media in detail, but there was almost no attention given to his role as vice-chairman of AIG from 2004-09, when the multinational insurer benefited from one of the biggest corporate bailouts in history.

Mr Netanyahu now says he would take his time to select a new candidate. Critics of the process say controversy around Mr Leiderman’s and Mr Frenkel’s candidacies are likely to deter good candidates. “People are afraid,” Mr Tamir says. “Would you go for this job?”

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