January 30, 2013 / 1:30 PM / 5 years ago

UPDATE 2-Bank of Israel's Fischer says deputy possible successor

By Steven Scheer and Tova Cohen

JERUSALEM, Jan 30 (Reuters) - Bank of Israel Governor Stanley Fischer said on Wednesday his deputy Karnit Flug would be capable of replacing him when he steps down ahead of time in June for personal reasons.

Fischer, 69, credited with guiding Israel through global crisis largely unscathed while raising Israel’s profile on the world stage, on Tuesday told Prime Minister Benjamin Netanyahu he would leave his job on June 30, two years before his second five-year term runs out.

“I‘m leaving mainly for personal reasons. Eight years is a very long time. Most of the things I wanted to do have been done,” Fischer told a news conference, citing economic and price stability and a new Bank of Israel law that led to the creation of a monetary policy committee (MPC) to make interest rate decisions. “I believe I am leaving the bank in good shape.”

Israeli media speculated that possible successors are Flug, Avi Ben-Bassat, a former director-general of the Finance Ministry and senior director at the Bank of Israel, and Manuel Trajtenberg, an economic adviser to Netanyahu.

Asked whether Flug, previously head of economic research at the central bank, was a good candidate to replace him, Fischer said: “We wouldn’t have appointed someone we didn’t think could serve as governor if needed.”.

Fischer - an academic mentor to Federal Reserve Chairman Ben Bernanke, European Central Bank Governor Mario Draghi and others - said that while the Bank of England had hired a Canadian as its central bank chief, it was not necessary every time to look outside a country’s borders. “There are several very good candidates for this job in Israel,” he said.

Fischer began a second and final term in 2010 but refused to say whether he would serve the full five years. He said he waited until after last week’s parliamentary election to make the announcement, while Prime Minister Benjamin Netanyahu asked him to stay on until the 2013 budget was passed.

RAPID ECONOMIC GROWTH

During his tenure, Israel’s economy grew faster than most. Fischer slashed interest rates and went against his own policy of staying out of financial markets by buying tens of billion of dollars to weaken the shekel and help exporters. The economy grew 3.3 percent in 2012, among the best in the West.

“The announcement brings some nervousness to the market, as Governor Fischer has been the anchor of Israel’s policy, both as the head of the central bank and given his credible advice on government policies,” said Mai Doan, an emerging markets economist at Bank of America Merrill Lynch, adding that Flug would be a strong candidate for governor.

“Together with the rest of the MPC, she would be able to ensure policy continuity at the Bank of Israel, given her longer tenure at the bank and under Governor Fischer’s lead,” she wrote in a note to clients.

Fischer’s economic concerns have been growing budget gaps and rising housing costs. He said the incoming government understood that plugging the budget hole was a priority and also urged it to speed up supply of housing to cool prices. The central bank has already tightened mortgage rules.

Fischer, who has turned down the post of Finance Minister, said he had no new job lined up and would not look for one until after he leaves. He expects to return to the United States but in the long run to live both there and in Israel.

Once chief economist at the World Bank and then first deputy managing director of the International Monetary Fund from 1994 to 2001, the Zambian-born Fischer - who has won international recognition as one of the world’s top central bankers - served as vice chairman of Citigroup before joining the Bank of Israel.

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