Summary of the Governor's remarks at today's press conference

2013-1-SF-stepdown-pressconference at BOI.docThis press release as a Word file


The Governor of the Bank of Israel held a press conference today at the Bank of Israel, following his announcement yesterday that he has decided to step down from his position on June 30 of this year. The following is a summary of his remarks.


Eight years is a very long time. The Prime Minister asked me to remain in my position until after the budget is approved by the new government, and so I decided to resign only at the end of June. The main goals which I set for myself when I entered the position have been achieved in full: We legislated the Bank of Israel Law, we signed a wage agreement, we carried out a reorganization, and obviously we managed monetary policy for the good of the economy and population, while maintaining price stability and financial stability.
I will leave the Bank of Israel with it in very good condition. The corporate governance at the Bank is strong. The Supervisory Council, chaired by Dan Propper, supervises the Governor when he makes administrative decisions. The experience of the past year shows that this change does in fact improve the quality of Bank of Israel administration. The Monetary Committee, including its three external representatives—Professors Reuben Gronau, Alex Cukierman, and Rafi Melnick—ensures that monetary policy decisions lead to better, well-founded, and stable policy. This system will support the decision making and management style of the next Governor, and will also help him avoid major mistakes.
I leave the economy in good shape, with serious challenges. First and foremost, a budget needs to be passed, which will be a basis for macroeconomic stability, with a limited deficit at a reasonable level. The economy remains with the challenge of dealing with the problem of bureaucracy from which we suffer. In recent years, Israel's ranking in international surveys, such as the World Bank's Doing Business survey, indicates a decline in Israel's status relative to other countries in this regard. This is a worrying fact. It is very difficult to deal with these problems which are related to the decision making system in the economy, and we saw that in the government's attempt to deal with the problems of bureaucracy in the housing sector.
Home prices pose an additional challenge. The Bank of Israel, the Ministry of Finance, and the government will need to continue to deal with this problem—the Bank of Israel can do things on the demand side, but it is more important that the government take steps to increase supply, because these steps both reduce prices and lead to more homes in the economy.
I have had the great privilege of working with the employees of the Bank of Israel. As is known, I had previously worked at other important economic institutions. I was very impressed by the level of the professionalism of Bank employees. During the global crisis, the Bank of Israel operated at a very high level and very effectively, and in areas in which substantial mistakes could easily have been made—such mistakes did not occur. I'm the one who receives the credit, but it applies as well to the professional and dedicated employees and managers of the Bank of Israel.
I had the privilege to work with various sections of the government. We have a very professional Ministry of Finance. Ministry of Finance control of the process of formulating expenditure policy is very important, so long as government ministries' ability to do so is not good enough. I want to thank the Ministers of Finance with whom I have worked, particularly the current minister. I have had the honor of working with Members of Knesset, primarily during the process of legislating the Bank of Israel Law, and throughout the period I had a very good relationship with the Finance Committee, which in recent years has been headed by MK Moshe Gafni. I worked very productively with Knesset members for the benefit of all the citizens of the State. I also enjoyed very fruitful work with the Prime Minister's Office, including the current Prime Minister who in this case also proposed to appoint me, when he was Minister of Finance. The Prime Minister understands economics; he is responsible for reforms which contributed to the stability of the economy in 2003, which is one of the bases for the economy's good performance in recent years.
I want to also thank those whom we call "Mrs. Cohen from Hadera"—the citizens of Israel. The Israeli public's relationship to me warmed my heart, and I am very proud of that, and I thank every citizen of Israel for the criticism I received, as well as, of course, the support.
At this time, I do not have plans for the future, and I do not have a position waiting for me. I hope and intend to continue to be involved in public life in Israel, and hope that my voice will continue to be heard in the public discourse. Israel is my second home, and I am not sure if the second is less of a home than the first. My wife and I are very thankful to the Israeli public for the 8 wonderful years that we've had here.
In response to questions from reporters, the Governor said:
I have faith that the government knows what it wants to achieve. We don't know, as of now, the composition of the coalition or who will hold the economic positions. The Prime Minister and the Ministry of Finance know that they need to deal seriously with the budgetary problems.
Back when we were writing the Bank of Israel's Annual Report for 2010, we noted that in 2013 there would be a problem with the budget, because total expenditure, the deficit target and the tax reduction program aren't consistent with each other. Therefore, a continued reduction in taxes while staying within the expenditure limitation would mean not meeting the deficit target. We said this time after time since then. I am the economic advisor to the Government, and in general, advisors don't provide their advice through the media. At a certain point, we felt that the message was not getting through very well, and we made a clear declaration to the public at the Caesarea Conference.
We achieved most of the things that I wanted to achieve at the beginning of the term, though not all of them. The salary agreement that we reached is not perfect. We currently have a problem recruiting high-level professional employees and will need to correct this. Among the goals that I set for myself at the outset, one of them which was at the bottom of the list was to contribute to an improvement in the public discourse in Israel, and unfortunately, I am not sure that we have managed to achieve this.
I knew that were I to announce my resignation a week before the elections, it would have led to a great deal of noise, and the decision would have been considered political. So I didn't announce it before the elections. I figured that even after the elections there would be those who would say that it was a political decision, but that is not the case. This is a personal decision.
Investors who purchased the Ministry of Finance's bonds in New York this week purchased bonds for ten or thirty years. They certainly did not think that I would remain in this position for such a long time. People from the Ministry of Finance did not know about my decision, so they cannot be accused of misleading investors.
Eight years is a long and very respectable time for this kind of position. Any time that I would have chosen to leave, the media would have found a crisis and it would have been claimed that I chose a bad time. The current budgetary problem is a problem that a responsible government can handle. It cannot be compared, for example, to the global crisis, which was a serious problem the likes of which we had not encountered. Everyone knows what needs to be done with the budget, and the Bank of Israel has a good ability to analyze the budget. You don't need a magician to solve the budget problem. You need courage, and I hope that the Government will have it.
There was no reason for me to commit to staying for the entire second term. The world changes, family situations change, and there is no reason for me to commit to something that I won't be able to fulfill. At the same time, I believe that it is important to maintain a five-year term for the Governor, since a full government term could reach almost five years, and it is important that there be continuity in the role of governor, particularly during an election campaign.
I do not intend to discuss the names of candidates to replace me. As to the question of the fact that I recommended that Karnit Flug be appointed as Deputy Governor, when she was appointed, we knew that her role was also to serve as Acting Governor when necessary, and I would not have proposed appointing a Deputy Governor whom I did not believe would be able to function as Governor when necessary.
You all know the expression that the graveyards are full of people who were thought to be indispensable. The markets are aware of the fact that the Bank of Israel will continue to be run well after I leave the position.


After I leave my position as Governor, my wife and I will return to the United States, because we haven't lived there for eight years. Later on, I assume that we will divide our time between the two countries.


Regarding the position of Foreign Minister, Finance Minister, or other positions: I always say that I tend not to accept positions that I haven't been offered. I can say that they previously offered me the position of Finance Minister, and I turned it down.
The Government must start dealing with the supply of apartments and to bring about an increase in the rate of construction. As long as 40,000 apartments were being built each year, we at the Bank of Israel were able to handle the demand side. But now, although the data are still unclear, it seems that the rate of construction is falling to the level of 30,000 per year. The Government must bring about an increase in the rate of construction.
Bank fees fell by more than 20 percent in the past few years. Without a doubt, this harms the profitability of the banks. We have no intention of preventing the banks from being profitable. We are demanding that the banks be fair toward their customers. When we find unfair fees, we demand that the banks change them. If the banks manage to profit more as a result of streamlining, this would certainly make me happy.