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Israel - Life after Frenkel

Author: Nigel Dudley

The local markets twitched nervously at the announcement in November of the resignation of Bank of Israel governor Jacob Frenkel, the man widely credited with curing the country's recalcitrant politicians of their addiction to inflation by insisting on an unbending monetary strategy. But, after an initial 1.2% drop, the shekel bounced back, even allowing the Bank of Israel to make a further 0.3% interest rate cut, and the stock market regained almost all of its losses within hours.

The sovereign bond, issued in June, and the recent $600 million issue for Israel Electricity are also performing strongly. These reactions are evidence that bankers and analysts are convinced that the legacy of Frenkel, who has dominated the economic landscape of the country through most of the decade, will live on long after he packs his briefcase for the last time on January 1.

Even though the temptation will remain for politicians to return to the old ways and reflate the economy in the run-up to elections - Frenkel's critics blame him for high unemployment - the majority view is that the culture has changed and there is an unshakeable consensus in favour of controlling inflation.