New Bank of Israel Governor Cautions Israel That It is Not Yet out of Economic Woods
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New Bank of Israel Governor Cautions Israel That It is Not Yet out of Economic Woods

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Prof. Michael Bruno, a leading economist formally installed Wednesday as Governor of the Bank of Israel, cautioned at the swearing-in ceremonies that the country is not out of the economic woods despite the initial successes of the austerity economic program of which he was one of the principal authors.

“There is still much to do to stabilize the economy and one should create conditions for a resumption of economic growth,” Bruno said after receiving the blessings of President Chaim Herzog who appointed him and of Premier Shimon Peres who supported his candidacy against that of a fellow Laborite, Deputy Finance Minister Adi Amorai.

The Bank of Israel is Israel’s central bank and has a role equivalent in some ways to that of the Federal Reserve Bank in the U.S. Bruno succeeds Moshe Mandelbaum who resigned.


Peres used the occasion of Bruno’s installation to stress the achievements of the government’s economic program, the most significant of which, to date, has been a dramatic reduction of the inflation rate. “The Americans have told us (that) what happened in the Israeli economy in the past year will go down in textbooks of economic history,” Peres said.

He was referring to a meeting he had Tuesday with members of an American economic delegation headed by Under Secretary of State for Economic Affairs, Alan Willis. He quoted a member of the group, economist Herbert Stein, as saying that praise is due not only for those who gave the right advice on the economy but also to those who had the courage to take the necessary difficult decisions.

However, Finance Minister Moshe Nissim who attended the meeting, recalled that the Americans had warned against the recent rise of private consumption in Israel and of imports. They said that to preserve the successes of the economic program, the government must guard the parameters of the budget and wages, Nissim pointed out. Bruno’s views seem to coincide with those of the Americans.


Bruno also spoke out during the ceremonies on the need to promptly implement the recommendations of the special commission of inquiry into the 1983 banks shares collapse, headed by Supreme Court Justice Chaim Beisky.

The commission’s report, released on April 20, was scathing in its criticism of the heads of the country’s five largest commercial banks. It recommended that they be made to resign within 60 days and should never again be appointed to positions of trust at Israeli banking institutions at home or abroad.

To date, all but one of the top bank executives have complied. The holdout is Rafael Recanati who refuses to step down as chairman of the family-owned Israel Discount Bank. Aharon Meir resigned as chairman of the Bank Hamizrachi but continues to head the bank’s overseas subsidiaries. Emest Japhet, who resigned as chairman of the Bank Leumi, has been appointed to another key position at the bank.


The government feels it has the right to demand compliance with the Beisky commission’s recommendations because it bailed out the five banks after investors panicked and dumped their grossly inflated shares, threatening the banks’ liquidity. The Knesset’s State Control Committee will introduce a bill next week to make compliance a matter of law.

Bruno said Wednesday that “One should remember that in an organized society, those who are found responsible for an act or a failure to act, must bear responsibility. It is true that carrying out the personal recommendations of an inquiry commission is difficult, but this is the basis for maintaining a social system.”

Willis, meanwhile, warned Wednesday that U.S. economic aid to Israel might not continue on the same level as heretofore. He told Foreign Minister Yitzhak Shamir that there is still a danger that Israel’s economic policy could collapse because the present low price of oil and the lower exchange rate of the Dollar could change at any time.

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