Bloomberg News

Frenkel Bank of Israel Bid Hits Bump on 7-Year-Old Incident (1)

July 15, 2013

JPMorgan Chase International Chairman Jacob Frenkel

JPMorgan Chase & Co. International Division Chairman Jacob Frenkel was supposed to be a shoo-in, a two-term former governor turned international businessman with the global contacts so useful to a small country. Photographer: Scott Eells/Bloomberg

The nomination of former Bank of Israel Governor Jacob Frenkel to his old job may have hit a bump following media reports he was briefly detained seven years ago leaving a Hong Kong shop with cologne he didn’t pay for.

Frenkel denied any wrongdoing, calling it an “unfortunate misunderstanding,” according to a July 12 statement. A committee that vets civil service appointments met yesterday to discuss his candidacy and “examine various queries submitted to it in recent days,” according to a statement from the panel.

Frenkel was suspected in 2006 of trying to leave an airport duty free shop with unpurchased cologne, detained for 24 hours, then released without charge, the Haaretz newspaper said July 12. The incident was dismissed by local authorities who “expressed appreciation that I didn’t sue them,” Frenkel said in an e-mailed response to the Haaretz report. Even so, a failure to have disclosed it to the vetting panel, as reported by Haaretz, may be reviewed.

“There are two things that should be examined: one is the incident itself, and the other is the reporting of it,” Shmuel Hollander, a former civil service head, told Army Radio yesterday. “Failure to report can be problematic in certain circumstances.”

Cabinet Approval

Frenkel’s appointment to replace Stanley Fischer, who stepped down June 30, also requires Cabinet approval. In the meantime, Deputy Governor Karnit Flug is filling in. The nomination was made by Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid, who have not commented on reports.

The benchmark TA-25 Index (TA-25) was little changed today, rising less than 0.1 percent to 1,221.32 at 2:47 p.m. in Tel Aviv. The shekel was little changed, trading at 3.5999 shekels to the dollar.

Frenkel, 70, was supposed to be a shoo-in, a two-term former governor turned international businessman with the global contacts so useful to a small country. His career trajectory has taken him from the University of Chicago to the International Monetary Fund to the boardrooms of Merrill Lynch & Co. and JPMorgan Chase (JPM:US) & Co., where he now is chairman of the international division.

Supporters lauded him for taming Israel’s chronic inflation and liberalizing financial markets during his 1991-2000 tenure as governor. Economist Dan Ben-David, executive director of the Jerusalem-based Taub Center for Social Policy Studies, called the appointment “one of the best choices that could have been made.”

Tamed Inflation

“He dragged the entire country kicking and screaming to normal inflation rates, when no one thought it was possible,” Ben-David said. Fischer credited him with helping Israel to weather the global financial crisis as well as it did.

“The fact that we could operate the way we did during the recession is due to changes that he brought about,” Fischer said last month.

From the outset, those credentials weren’t enough to shield Frenkel from barbs and challenges. Critics said his hawkish approach to inflation had hurt the economy with high interest rates that restrained growth. Others questioned his professional judgment, pointing out he was vice-chairman of American International Group Inc. (AIG:US) when the insurance giant was forced to take a U.S. federal government bailout to survive.

Performance at AIG

The Israeli public should be asking about Frenkel’s role at AIG, a company that took “tens of billions of dollars from American taxpayers,” instead of worrying about a bottle of cologne, columnist Nahum Barnea wrote in the Yedioth Ahronoth newspaper today.

The legality of Frenkel’s nomination has also been called into question. A 2010 amendment to the Bank of Israel Law limits governors to two terms. Attorney General Yehuda Weinstein says that applies only to governors who serve after the legislation was enacted. The Movement for Quality Government in Israel, a good governance group, disputes that interpretation and has asked the vetting panel and President Shimon Peres, who makes the formal appointment, to block it.

“The new testimony that has been uncovered over the weekend adds to the cloud of questions regarding the suitability of this appointment,” the group said in an e-mail today.

Some critics of the appointment also dug up a 2002 state comptroller’s report that accused Frenkel of putting in for tens of thousands of dollars of compensation he didn’t deserve while governor.

Frenkel returned the money, Fischer said, when asked about the report at a June 25 press conference.

In his e-mailed statement, Frenkel expressed confidence that he would return to Israel to lead the Bank of Israel in early October. “I see it as a national mission for the benefit of the economy and the state,” he said.

To contact the reporter on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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