Bank of Israel, fin min fall out over new law

Stanley Fischer, the governor, said on Sunday that the new law would "contribute to the economic and financial strength of the state of Israel." Fischer also said that he would block attempts from the finance ministry to control central bankers' pay as this would give the authority "a tool to use against the central bank every time there is a disagreement."

The new law - the pet project of Fischer, the governor of the central bank - would create a monetary policy committee to decide on rates. At present, Fischer alone sets rates and the new regime would foster greater transparency.

However, the finance ministry and central bank have fallen out over the committee's composition and central bankers' salaries. Fischer is thought to prefer a five-member panel with three central bank appointees, but the finance ministry wants a six-strong board, divided equally between central bankers and external appointees. Central bankers want their salaries, which the finance ministry sees as exorbitant, set by another board that would ultimately be controlled by the Israeli prime minister.

The finance ministry indicated over the weekend that Fischer had changed his mind over its request for the six-strong committee: "After two long years of long and stubborn negotiations, including thousands of hours of discussions, disagreements and agreements, we are shocked by the governor's proposal." The ministry said that the governor and the central bank were "going back on all the agreements and promises."

The central bank responded by saying that "after three and a half years of attempting to push forward the Bank of Israel Law, through cooperation with the treasury, we once more discover that the treasury's perspective reflects a lack of understanding regarding the central bank and its independence, and does not serve the Israeli economy."