Hundreds of senior Israeli economists published an “emergency” letter Wednesday warning that the new Justice Minister Yariv Levin’s proposed plan to weaken the judiciary may cause “grave damage” to Israel’s economy.
Among the signatories are 10 economics professors, including Nobel Prize-winning economist Prof. Daniel Kahneman, former heads of the Bank of Israel and past and present presidents of the Israel Economic Association.
“The existence of great political power in the hands of a ruling group without strong brakes and balances, may lead the country to economic backwardness,” the letter warns.
The letter comes on the heels of a meeting between PM Benjamin Netanyahu and Bank of Israel Governor Prof. Amir Yaron, in which Yaron warned that senior global economic figures had expressed concerns to him about the potential consequences of the government’s planned judicial overhaul.
This comes following warnings by international credit rating agencies including S&P, that the moves may lead them to cut Israel’s credit rating. Yaron recently returned from the World Economic Forum convention in Davos.
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It also comes against the backdrop of protests within Israel’s business community, most recently by people in high-tech Tuesday. Yaron’s predecessors, Karnit Flug and Jacob Frenkel, have warned that the government’s moves to weaken the justice system may jeopardize the free market and Israel’s attractiveness to foreign investors, and lead Israel down a slippery slope toward a lower credit rating. In addition, Prof. Moshe Hazan resigned from the Bank of Israel’s monetary committee this week in order to fight the government’s plans to harm the court system’s status. Hazan has warned that such steps will harm Israel’s economic standing and reduce its credit rating.
On Monday Netanyahu dismissed the warnings. “Good people from the business community, even former senior figures at various institutions, are getting swept up by these spins – that we’ll harm property rights, the honoring of contracts. It’s simply absurd!” Netanyahu stated, noting the high demand for Israeli government bonds issued last week, “at a lower interest rate than U.S. government bonds,” and the strengthening shekel.
The meeting between Yaron and Netanyahu was their first since Netanyahu’s return to office December 29. Netanyahu appointed Yaron during his previous term, but during the COVID crisis and the last government, Yaron criticized the conduct of Netanyahu’s government, among other things for handing out money to all citizens as stimulus payments.
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The Bank of Israel said in a statement: “During the meeting the governor reviewed the state of the Israeli economy and the challenges facing it, both domestically and internationally. The governor submitted an economic strategy plan, formed by the Bank of Israel, to the prime minister, which includes policy recommendations in a myriad of fields, and discussed various issues with him ahead of the upcoming Economic Arrangements Law. Governor Yaron shared with the prime minister various issues regarding Israel that came up in his discussions with senior global economic figures and senior credit rating agency executives in recent weeks.”
This comes while work is beginning on the 2023-24 state budget. Challenges include rising inflation, expensive coalition obligations and concerns that the government will overspend.
The meeting was also attended by Finance Ministry Shlomi Heisler and Budgets Division chief Yogev Gordus. Prof. Avi Simhon, a former head of the National Economic Council and Netanyahu’s candidate to lead it again, also attended, despite the fact that his appointment has yet to be approved and he is currently serving only as an adviser.
Prior to the meeting, Netanyahu and Finance Minister Bezalel Smotrich agreed on the principles for the next state budget. Although the coalition agreements call for tens of billions of shekels in increased expenditures, the Prime Minister’s Office indicated in a statement that there is no intention of carrying out any significant fiscal expansion or budget increase. “The Prime Minister and Finance Minister have agreed on limiting the coalition agreements and on the intention of maintaining a responsible and restrained fiscal policy, and on adjusting it to the Bank of Israel’s monetary policy in order to maintain and stabilize Israel’s economy for the next four years,” the PMO said.
Netanyahu and Smotrich further announced that they will soon submit, through the budget and other legislation, “responsible, growth-and-infrastructure-oriented arrangements that will reach all strata of society, aid in reducing the cost of living and move Israel’s economy and the entire country forward.”