The Bank of Israel chief said he was warning Netanyahu that the judicial transition would hurt the economy

Prime Minister Benjamin Netanyahu met with Bank of Israel Governor Amir Yaron on Tuesday over warnings that the ruling coalition’s plans to overhaul the judiciary could scare off investors and negatively affect the country’s creditworthiness.

According to Hebrew media reports, Yaron Netanyahu outlined the possible implications of the proposed judicial overhaul and delivered warnings from senior business figures and officials from credit rating firms during his recent meetings at the World Economic Forum in Davos.

Yaron specifically told Netanyahu that the restructuring of the judiciary would hurt the economy, public broadcaster Kan and Channel 12 News reported.

The latter network said Netanyahu signaled no inclination to soften the planned judiciary transformation at Tuesday’s meeting, which it described as an emergency meeting. It was also reported that the Bank of Israel has submitted to the Ministry of Finance a list of concerns raised by international rating agencies.

The face-to-face talks were Netanyahu’s first with Yaron since retaking the prime ministership last month. Netanyahu appointed Yaron as central bank governor during a previous tenure as prime minister.

A Bank of Israel statement said Yaron spoke to Netanyahu about “various issues that … have arisen in consultations over the past few weeks with senior international business officials and senior rating agency officials,” without mentioning planned changes to Israel’s judicial system .

The statement said Yaron also gave Netanyahu an overview of the Israeli economy and the challenges it faces, presented the bank’s “strategic economic plan” and discussed various unspecified issues ahead of the next state budget.

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There was no information from Netanyahu’s office about the meeting, which took place hours after an hour-long strike by hundreds of technicians to protest the planned changes.

Tech workers block the street in Tel Aviv on January 24, 2023 to protest the judiciary overhaul. (Tomer Neuberg/Flash90)

On Sunday, former Bank of Israel Governors Karnit Flug and Jacob Frenkel, in a joint commentary, warned that the government’s plans for a major overhaul of the country’s judiciary are negatively affecting Israel’s creditworthiness and “delivering a serious blow to the economy and its economy.” could move citizens.”

“The weakening of the judicial system (…) is expected to result in a decrease in the willingness of foreign investors to invest in Israel and an increase in the cost of raising funds for the Israeli government as a result of a potential downgrade in the country’s credit rating,” declared Flug and Frenkel.

Rating agency Standard & Poor’s (S&P) said earlier this month that the new West Bank government’s plans to transform the judiciary and hard-line policies could negatively impact the country’s rating.

Maxim Rybnikov, director of global ratings at S&P, told Reuters: “If the announced changes to the judicial system result in Israel’s institutional arrangements and existing checks and balances being weakened, it could pose a downside risk to ratings going forward.”

As presented by Justice Minister Yariv Levin, the coalition’s proposals would severely limit the Supreme Court’s ability to overrule laws and government decisions, with an “override clause” allowing the Knesset to re-enact abolished laws with a slim majority of 61; give the government complete control over the selection of judges; prevent the court from using a test of “reasonableness” to evaluate laws and government decisions; and allow ministers to appoint their own legal advisers instead of seeking advice from advisers working under the auspices of the Justice Department.

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The talks with Yaron follow a meeting between Netanyahu and Finance Minister Bezalel Smotrich on Tuesday aimed at setting the new government’s fiduciary policy.

According to a joint statement, the two agreed to maintain a responsible fiduciary course and align the government’s positions with the Bank of Israel’s monetary policies.

Prime Minister Benjamin Netanyahu (L) and Finance Minister Bezalel Smotrich at the Prime Minister’s Office in Jerusalem, January 11, 2023. (Olivier Fitoussi/Flash90)

Smotrich, whose far-right Religious Zionism party is a major supporter of reducing the powers of the judiciary, appeared to dismiss warnings of the potential economic fallout.

“In the face of the opposition’s fear-mongering and irresponsible actions aimed at harming the economic strength of the State of Israel, the coalition is united and responsible and will work together for Israeli citizens,” he said.

He also said that a budget for the coming year would be presented “very soon”.

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