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Last updated: January 29, 2013 8:04 pm
Stanley Fischer on Tuesday announced he would resign as governor of the Bank of Israel at midyear, after more than eight years on the job, two years before his term was due to end.
No reason was given for Mr Fischer’s retirement, which comes at a delicate time for the country’s economy and a week after a general election that returned Benjamin Netanyahu to office for a third term.
Israel’s central bank said that Mr Fischer, a former senior International Monetary Fund official and contender for the top IMF job who kept the country’s economy steady through the financial crisis, had informed Israel’s prime minister of his intention to step down on June 30.
Two people familiar with Mr Fischer’s decision told the Financial Times on Tuesday that he had been considering leaving for some time, but had postponed the announcement in order to avoid causing a distraction during the election campaign.
One of them said: “He has achieved what he wanted to achieve”. On Tuesday Mr Fischer said that in addition to meeting his goal of “advancing the Israeli economy”, he had passed a new law governing the central bank in 2010 that increased the bank’s autonomy and created a monetary policy committee.
The Bank of Israel said that Mr Fischer would “continue to deal fully with all matters pertaining to the bank” until the end of June and that the central bank governor would hold a press conference on Wednesday.
Mr Netanyahu said on Tuesday that the governor had “played a major role in the economic growth of the state of Israel and in the achievements of the Israeli economy”.
The prime minister, who was re-elected for a third term with a weakened mandate last week, is in talks to form a new coalition that economists say will have to cut spending and raise taxes to narrow a growing fiscal deficit, which reached more than $10bn last year – twice the government’s target.
The prime minister is now trying to build a broad coalition including opponents led by Yair Lapid’s Yesh Atid party, which campaigned on promises to ease the economic burden on the middle class.
Labour, Israel’s biggest leftwing party, said that Mr Fischer’s resignation sent a “worrying message” to Israelis.
“Stanley Fischer’s premature and surprising resignation is a harsh expression of no confidence in Prime Minister Netanyahu and a slap in the face of his economic policy,” said Shelly Yachimovich, chairwoman of the Labour party.
As a former deputy managing director of the IMF and respected economist, Mr Fischer brought state-of-the-art central banking to Israel and deployed it to great success. The economy avoided a contraction in 2009, and growth was higher than in the years immediately before he became governor.
His tenure was marked also with less orthodox policies, particularly when Israel became a destination for hot money flows. Mr Fischer introduced a policy of currency intervention to prevent the rapid appreciation of the shekel, building significant foreign exchange reserves in the process.
The Bank of Israel was also an early adopter of one of the latest fashions in central banking: “macroprudential” policies, where the authorities attempt to prevent excessive debt-fuelled asset-price growth through means other than raising interest rates.
The bank, however, faced strong public opposition when it moved to damp house price growth by restricting credit lending, bringing accusations that the central bank favoured foreign investors over first-time buyers.
“He has been a most excellent governor of the BOI,” Nouriel Roubini, the US economist, wrote on Twitter on Tuesday. “A big loss for Israel”.
Stanley Fischer has been governor of the Bank of Israel since May 2005, writes Julia Zhu in London. He was nominated governor for a second term in May 2010.
Before joining the bank, Mr Fischer was vice-chairman of Citigroup from 2002 to 2005 and president of Citigroup International.
He was the first deputy managing director of the International Monetary Fund from 1994 to 2001.
Before joining the IMF, Mr Fischer was head of the department of economics at Massachusetts Institute of Technology. From 1988 to 1990 he was chief economist at the World Bank.
Mr Fischer was born in Zambia in 1943. He received his bachelor’s and master’s degrees in economics from the London School of Economics and obtained his Ph.D. in economics at the MIT in 1969.
He has held visiting positions at the Hebrew University, Jerusalem, and at the Hoover Institution at Stanford.
He is the co-author, with Rudi Dornbusch and Richard Startz, of one of the most widely used introductory college textbooks on economics.
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