At a public lecture he delivered last month, Bank of Israel Governor David Klein told the story of the Citibank representative in Buenos Aires who convinced an Argentine physician to transfer a dollar account she held in New York to the local branch of the bank, on the grounds that the deposit would be just as safe - and earn higher interest. Some time later the government of Argentina froze the dollar accounts in local banks and required that they be exchanged for pesos, the value of which was devalued by two-thirds or more. Overnight, the physician became a poor woman. Klein has been quoted as saying: "The only factor that is preventing such a situation [in Israel] is the Bank of Israel, and if its hands are tied and it has irrelevant missions imposed on it, it will mean the destruction of the last dam in the economy." In other words: If the Bank of Israel Law is amended against Klein's will, the government will be able to run wild and Israel can expect the same fate as the Argentine economy.
Klein's ill-judged comments about the Trade Bank earned the appropriate public feedback, but usually attention is not paid to the significance of his statements in his dispute with the finance minister over the proposal to amend the Bank of Israel Law. Klein is opposed to the proposed amendment and he has his reasons. This is his right and, from the prospective of the central bank, his duty as well. But Klein is not confining himself to professional arguments against the proposed amendment, but is warning at every opportunity and in every forum, of the disaster that is expected, in his opinion, to the economy if the amendment is passed, and to this he adds descriptions of what the horrifying results would be. Is he trying to create public support through fear-mongering?
At a public lecture he delivered last week Klein spoke again of the disaster hovering over the economy, in all its detail. The amendment to the law "will bring back inflation, cause a retread from the foreign currency liberalization, make it necessary to raise the interest rate and undermine the stability of the financial markets." At a press conference in mid-March, Klein demonstrated the danger threatening the stability of the financial system. "Damage to financial stability will affect all the citizens of the state" - a clear hint at the possible collapse of the banks (ironically, the collapse of the only bank so far was caused, in the opinion of many, by supervisory faults at the Bank of Israel).
The lecture last month at Bar-Ilan University, the printed text of which the bank distributed to journalists and others, emphatically bore the alarmist heading: "The Citizen's Financial Freedom Lies in the Balance." No more and no less. In the lecture Klein stated: "The commitment to freedom with regard to foreign currency, like the commitment to price stability, must be a natural part of the civil liberties and of the economic regime in Israel."
It is doubtful that price stability and a free market in foreign currency are "a natural part of civil liberties." (Would the imposing of restrictions in these areas be considered a violation of civil liberties and serve as a reason to petition the High Court of Justice?) The government has at its disposal legal administrative authority that allows it freedom of action in these areas as the conditions warrant (for example, in the area of exchange rate policy), and it is difficult to assume that any government would agree to relinquish this authority. After all, it is the elected government that bears responsibility to the Knesset for the results of its economic policy.
The presumption by a government official, however senior he may be, to define civil liberties in the economic realm as almost a Basic Law is completely unacceptable. The Bank of Israel does not have the legal and public authority (nor, in the light of the way it administers its won internal matters, does it have the moral authority) to try to dictate basic norms in this area.
The proposal for the amendment of the Bank of Israel law as presented by the Finance Ministry is by no means perfect. It contains provisions that should be reconsidered comprehensively and perhaps modified. The Bank of Israel will be given a fair chance to present its reservations when the proposal comes up for debate in the Knesset. However, it is damaging and superfluous for it to attempt to promote its positions through fear-mongering and threats. Despite the erosion in the central bank's credibility in recent months, it still enjoys great prestige in the international financial community. An alarmist description of what is expected for the economy if a proposed law that is not exactly congruent with the bank's predilections is passed could cause Israel damage even before the amended law faces the reality test.