Tuesday night in his Knesset office, Prime Minister Benjamin Netanyahu met with Professor Amir Yaron, The Governor of The Bank of Israel against the backdrop of global concern over the Jewish State’s proposed reforms to its judicial system.
According to a report in the Israeli newswire service ‘Walla!’, at the meeting, the governor warned Netanyahu against damage to Israel's credit rating as a result of the implementation of the reforms proposed by Justice Minister, Yariv Levin. According to Yaron: "The world is following with concern the developments that may keep international companies away from investing in the country," he said.
"As far as S&P is concerned, the independence of the Bank of Israel and of the system of justice is vital to the maintenance of Israel’s current high rating."
— Samuel Sabbah (@Samuel_Sabbah) January 16, 2023
- Ori Greenfeld, Psagot Chief Economist
The story ➡️https://t.co/EOtyukuRAA pic.twitter.com/oy0EjE5fnB
In his review, Governor Yaron referred to the challenges facing the Israeli economy, both locally and from an international perspective. He also conveyed to the Prime Minister various issues that were raised in the discussions he had with senior economic officials around the world, as well as with the senior officials of the rating companies in recent weeks.
In addition, Governor Yaron presented a strategic plan formulated by the Bank of Israel which included economic policy recommendations in a variety of areas - and specifically in preparation for the upcoming ‘Settlements Law’.
Past Governors Speaking Out
The meeting was held against the backdrop of warnings by former Bank of Israel Governors Karnit Flug and Yaakov Frankel, as well as the current Governor, Professor Yaron, of the consequences of the reform of the legal system on the Israeli economy. Some of the concerns from the Governors came about from an interview given by a senior executive of the world's largest credit rating company, S&P Global Ratings.
In a meeting this evening, Bank of Israel Governor Amir Yaron told PM Netanyahu & FinMin Smotrich that implementation of their "judicial reform" will harm Israel's economy & Israel's international credit rating. https://t.co/N341mQQvv0
— Noga Tarnopolsky נגה טרנופולסקי نوغا ترنوبولسكي (@NTarnopolsky) January 24, 2023
In that interview, the executive warned of apparent damage to the country's credit rating if the reform is approved. According to him, the rating will be damaged if drastic changes that will weaken Israel’s democratic institutions, especially the judiciary.
The Coalition Agreement's Impact On Israel's Fiscal Stability
After the establishment of the latest Netanyahu government, Governor Yaron warned of the budgetary implications of the commitments he made within the agreements - and called on the government to behave responsibly in all matters of fiscal policy. To convince certain minor parties to back him, Netanyahu made expensive commitments such as increasing welfare to the ultra-orthodox communities as well as removing certain taxes that the State relies on for revenue. Yaron had warned earlier this month that if Netanyahu were to implement the agreements he made, it would have a profound effect on inflation.
In rare warning, Bank of Israel Governor Amir Yaron says that implementation of the Netanyahu government's coalition agreements will cause sharp rise in inflation. #yourvotematters
— Noga Tarnopolsky נגה טרנופולסקי نوغا ترنوبولسكي (@NTarnopolsky) January 2, 2023
In the meetings between the Prime Minister and the Minister of Finance Bezalel Smotrich, it was agreed that the government would hedge the coalition agreements - that is, to limit the budgetary commitments resulting from the coalition agreement in accordance with the limitations of the fiscal budget. According to a government source, "a relatively limited plan was agreed upon. The corona and the surrounding challenges force us to maintain the budget, and in the coming year we do not intend to open special budgetary reserves - but to use the existing ones."
