Tel Aviv The conflict over Israeli judicial reform is also having an impact on the country’s valuation on the financial markets. The rating agency Moody’s has downgraded its outlook for Israel from “positive” to “stable” – a sort of “yellow card” against the country just before the country’s 75th Independence Day celebrations.
The rating justifies the agency with the judicial reform and the tensions in the country. Moody’s sees threats to “Israel’s institutional and governmental strength.”
It is also unclear whether a compromise can still be found in the reform. According to the analysts, however, that would be a prerequisite for Israel being able to resume the “positive economic and fiscal trends” of the past few years.
For the time being, skepticism prevails. If the coalition government implements the planned politicization of the judiciary and disempowerment of the Supreme Court without broad approval, it is quite clear that Israel’s current creditworthiness is in jeopardy, the Israeli business daily Globes summarizes the risks.
The government’s plans for an overhaul of the judiciary and the way that reform has been handled have exposed weaknesses in Israel’s executive and legislative branches, Moody’s said. “The predictability of the country’s executive and legislative institutions has decreased,” says the rating agency’s report.
Netanyahu appeased
The government does not want to accept the criticism. The Israeli economy is “stable and solid” and will remain so “with God’s help,” Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich dismissed the warning in a joint statement. The concerns expressed by Moody’s are understandable only to those unfamiliar with the strength of Israeli society.
The Israeli prime minister dismisses Moody’s fears.
(Photo: dpa)
Meanwhile, internal critics also warn. Treasury officials, for example, warn that if current trends continue, the damage to the economy is inevitable in the medium and long term. The consequences would be a decline in economic growth and lower tax revenues.
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Israel’s startups are also sounding the alarm. They fear that Netanyahu’s government is endangering the nation’s innovative power. Technology industry leaders are concerned that the country is becoming less attractive to investors. The coalition government, made up of right-wing extremists and ultra-Orthodox, is jeopardizing Israel’s position as one of the leading tech nations.
Foreign investment is already declining. For example, only $1.7 billion was invested in local high-tech companies in the first quarter of 2023, compared to $5.5 and $5.8 billion in the first quarters of 2021 and 2022. Israel’s high-tech industry currently accounts for 25 percent of the country’s tax revenues Landes, employs eleven percent of the workforce and generates around half of the exports.
Tech companies and the central bank criticize politics
The difficulties that the tech industry is facing are also the result of the global crisis, managers of young companies admit. But Israel’s problems are compounded by politics.
Nearly 80 percent of tech company executives said in an opinion poll that meetings with investors have been canceled, and 30 percent say they have stopped having meetings with investors due to uncertainties on the justice front.
The governor of the Central Bank of Israel has also criticized the judicial reform.
(Photo: Reuters)
The government’s judicial reform is “hasty” and could affect the independence of the judiciary, criticizes the Governor of the Central Bank of Israel, Amir Yaron.
Abroad, too, experts warn that the intended reform is harmful to the economy. In an interview quoted by TV channel 13 News, former Federal Reserve Chairman Ben Bernanke warned that the planned reform of the legal system would “cause enormous damage”. Meanwhile, the shekel is losing ground as the outlook for Israel’s credit rating and economy worsens. The Israeli national currency had previously developed positively.
Founders fear further damage from Netanyahu’s policies
Anyone who compares Netanyahu’s current policy with the past will notice an astonishing change. At the beginning of his long career, “Bibi” turned Israel inside out in a positive way. Twenty years ago, as Minister of Finance, he unleashed the socialist encrusted economy. The rise to high-tech world power can be attributed not least to his liberalization policy at the time. In the past, says the manager of a highly rated start-up, Netanyahu was one of the best financial politicians. But now he has pushed aside all consideration for the economy.
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Businesses are concerned not only about the plans to weaken and politicize the judicial system, but also about the announced massive boost in funding for ultra-Orthodox schools where subjects such as mathematics or English are not taught. One company founder fears that this will have a negative impact on the next generation of Israeli tech specialists.
President Isaac Herzog is now trying to contain the damage caused by the reform plans in negotiations with representatives of the coalition government and the opposition. In a series of interviews marking the country’s 75th Independence Day, he expressed optimism that a compromise could be reached on judicial reform to overcome “the worst internal crisis in the country’s history.” At the same time, however, the pressure from the extra-parliamentary opposition, which wants nothing to do with a compromise, is increasing.
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