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March 21, 2023 8:26 am
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Israel Finance Minister Officials Warn of Economic Backlash Over Judicial Overhaul

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avatar by Reuters and Algemeiner Staff

Israeli Finance Minister Bezalel Smotrich speaks at a news conference after announcing that he will sign an order to seize Palestinian Authority funds and transfer them to the families of victims of Palestinian attacks, at Israel’s Finance Ministry in Jerusalem, January 8, 2023. Photo: REUTERS/Ronen Zvulun

Top officials at Israel‘s Finance Ministry have warned that the government’s planned judiciary overhaul could seriously harm the economy, according to documents seen on Tuesday, but Finance Minister Bezalel Smotrich seemed to dismiss any negative impact.

Officials, including the ministry’s director general, budget director and chief economist, met with Smotrich on Monday to assess the economic impact of the planned overhaul, which would give greater government sway in selecting judges and limit the power of the Supreme Court to strike down legislation.

The package of reforms sought by Prime Minister Benjamin Netanyahu’s right-wing coalition has triggered weeks of unprecedented street demonstrations and warnings by analysts of an economic backlash.

The new documents, reviewed by Reuters, shed light on the concern among the Finance Ministry’s most senior officials, who cited unease among foreign investors and a shekel that has depreciated sharply to a three-year low.

“Implementing the proposed judicial reform could bring very significant harm to the economy,” said a document from the ministry’s chief economist.

The ministry’s budget department wrote separately that there have been “initial indications” of the development of negative sentiments towards the Israeli economy.

Moody’s Investor Service said this month that the Israeli government’s planned judicial reforms could weaken institutions and negatively impact Israel‘s sovereign credit profile.

“A rating downgrade could lead to a 2.8% to 5.6% loss in economic growth compared to forecast growth, that in a decade will amount to a loss of 50-100 billion shekels ($14-27 billion) a year in real terms,” according to the budget division’s document. It noted a reduction of income to the government’s coffers by 15-30 billion shekels a year.

It could also make it harder for Israeli companies to raise money, which would hurt their bottom line, it said.

The Finance Ministry put out a statement late on Monday painting a different picture of the discussion, saying only that “risks and opportunities” were presented and Smotrich saying he would lead the economy responsibly in case of any challenges.

“I believe (the reform) has great opportunities for the economy regarding legal certainty and renewed synergy between authority and responsibility that will lead to a more flexible risk management model, which will lead to reduced bureaucracy and regulation and great growth,” said Smotrich, a proponent of the judicial plan.

The Bank of Israel, which has urged judicial independence, expects economic growth of below 3% in 2023 after a 6.4% spurt last year.

Netanyahu – who is on trial on graft charges he denies – says the judicial changes are needed to restore a balance of power in government.

Critics, who range from the business elite to former military officers as well as opposition parties, say they would weaken Israel‘s democracy and hand uncontrolled powers to the government of the day.

($1 = 3.6527 shekels)

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