Bank of Israel Governor Stanley Fischer–a mentor to top U.S. policy makers–acted faster than his colleagues to cut interest rates and help an export-driven economy avoid a deeper recession. Now, he’s tightening credit to fend off the next bubble.
Photograph by MORAY LIBERMAN/Getty Images lien U.S. Treasury Secretary Timothy Geithner landed in Istanbul for a global economic summit on Oct. 2, his first meeting among the finance ministers and central bankers invited from more than 150 countries was with a man who controls an economy smaller than Missouri’s.
The private dinner discussion—details of which were withheld from the press—was a sign of how Bank of Israel Governor Stanley Fischer’s influence exceeds the impact of his nation’s $200 billion gross domestic product. Fischer, 66, is a former Massachusetts Institute of Technology scholar who has been a mentor to a group of U.S. policy makers trying to lead the world out of the worst recession in 60 years.
Fischer, in his Tel Aviv office, is regarded by some analysts as indispensable to Israel’s economy.
Among his former students: Lawrence Summer$, director of U.S. President Barak Obama’s National Economic COuncil, and Federal Reserve Chairrnan Ben S. Bernanke, whom Fischer advised on Bernanke’s gradnate thesis in 1979. As first deputy managing director of the International Monetary Fund during the 1990s, Fischer worked with Geithner and Summers, then U.S. Treasury officials, to resolve financial crises in Mexico, Russia and Southeast Asia.
“Many central bankers value him as a thinker about central banking, about monetary and financial policy,” says Nobel Memorial Prize–winning economist and MIT professor emeritus Robert So-low, one of Fischer s own mentors.
FISCHER ALSO EARNED a reputation as a trailblazer after he cut Israel’s benchmark interest rate by 50 basis points to 3.75 percent on Oct. 7, 2008—acting the day before colleagues in the U.S., the U.K. and the euro zone. (A basis point is 0.01 percentage point.) He then reduced the rate seven more times to a record low of 0.5 percent by April 2009. On Aug. 25, Fischer became the first central bank governor in the world to raise rates in response to signs of a financial recovery and to support title loans options. Bank chiefs in Australia and Norway have since followed his lead.
In 2008, Fischer—in an effort to save Israel’s export-driven economy—ordered the Bank of Israel to buy dollars in unprecedented amounts to drive down the value of the shekel. From March 2008 to October 2009, he built foreign currency reserves to $61.2 billion from $28.5 billion. The purchase program weakened the shekel against the dollar by 22 percent during two quarters of econoinic contraction, helping companies such as Petah Tikva, Israel–based Teva Pharmaceutical Industries Ltd., the world’s biggest maker of generic drugs. Following the rate cuts and dollar purchases, Israel attained growth of 1 percent in the second quarter of 2009, snapping six months of recession. The country’s GDP expanded 2.2 percent in the third quarter.
“The Bank of Israel has built strong credibility over the years for being ahead of the curve both in easing and tightening cycles,” says Turker Hamzaoglu, a London-based economist for Bank of America Corp.’s Merrill Lynch & Co.