A major crisis may be brewing at the Bank of Israel's Monetary Committee if and when the Turkel Committee approves the appointment of Prof. Leo Leiderman as the central bank's next governor. Some of the Monetary Committee's three external members - Prof. Rafi Melnick, Prof. Alex Cukierman, and Prof. Reuben Gronau - have been expressing their disquiet and are considering resigning from it. If this scenario materializes, it will happen after Leiderman's appointment is final. Until then, the three professors will continue to sit on the Monetary Committee and be involved in its interest rate decisions.
The Bank of Israel's three Monetary Committee members - former governor Stanley Fischer, Deputy Governor and acting Governor Karnit Flug, and senior advisor to the Governor Barry Topf - have already left the Bank of Israel or have announced their pending departure. Whatever happens, the Monetary Committee will soon have a completely different make-up.
The committee's three external members were unavailable for comment.
The Monetary Committee sets monetary policy and what actions the Bank of Israel should take or not take to achieve it. It decides by majority vote Israel's interest rate. The committee was established by the new Bank of Israel Law (5770-2010) and comprises three members from the Bank of Israel and three external members. The governor of the Bank of Israel is the committee chairman, and in the event of a tie vote, he casts the tie-breaker.
The Monetary Committee met last Monday to decide the interest rate for August. Flug chaired the meeting, which was held in a good atmosphere and mutual respect. The decision to keep the interest rate unchanged was unanimous, but the moment the news broke that Prime Minister Benjamin Netanyahu and Minister of Finance Yair Lapid had picked Leiderman as the next governor, rumors began about disquiet among the Monetary Committee members.
The Monetary Committee's three external members are all longstanding professors of economics with international reputations. Cukierman and Melnick both work at the Interdisciplinary Center Herzliya, and Gronau is at the Hebrew University of Jerusalem and the Maurice Falk Institute for Economic Research in Israel. Melnick, an expert in monetary policy, is considered their leader.
Sources inform ''Globes'' that Melnick had expressed dissatisfaction about Leiderman even before his appointment, and that he was joined by at least one of the other external committee members.
The resignation of the Monetary Committee external members would be an earthquake at the Bank of Israel and will make it much harder for Leiderman to smoothly take up his post.
Melnick and Leiderman have known each other for a long time. Melnick, who was born in Chile, was the Bank of Israel deputy research department director in 1991-98. Leiderman, who was born in Argentina, served at the same time as an advisor monetary department and senior advisor to then-Bank of Israel Governor Jacob Frenkel. Frenkel appointed Leiderman as the director of the research department in 1996.
The new Bank of Israel Law places critical importance on stability and continuity of the Monetary Committee's external members. Article 97 states that the one external member will be appointed for two years, one will be appointed for three years, and one for four years. The purpose is to ensure a staggered succession. Gronau was appointed in October 2011, and his term is due to end in October 2013. Melnick's term will end in October 2014, and Cukierman's terms will end in October 2015.
Published by Globes [online], Israel business news - www.globes-online.com - on August 1, 2013
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