‘Huge uncertainty’ for investors and economy as Israel pushes for questionable reforms

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Israel’s shekel fell nearly 6% in February and hit its lowest point against the dollar in three years as political unrest erupts over questionable judicial reforms pushed by Benjamin Netanyahu’s right-wing government.

Some 160,000 demonstrators took to the streets of Tel Aviv over the weekend, and tens of thousands more piled up in other cities, protesting against the ruling coalition’s planned legal reform, which would weaken Israel’s judicial system.

Banners carried through crowds of protesters read “No constitution, no democracy” and “They will pass. “Members of Israel’s business, academic, legal and even military communities have warned that they oppose such changes.

Former Israeli Prime Minister Ehud Barak called the plans “an assassination of the Declaration of Independence, which will lead Israel to a dictatorship,” and described the existing scenario as “the worst crisis since the formation of the state. “

Prime Minister Netanyahu called the protests, now in their third month, “creating anarchy” and provoking new elections. Israel, deeply divided, has held five snap elections since April 2019.

In short, the proposed judicial reform will seriously restrict the ability of Israel’s Supreme Court to review and overturn legislation it deems unconstitutional. The Knesset, Israel’s parliament, voted last week to push through much of the reforms.

They necessarily consist of 4 main clauses:

Netanyahu and his justice minister, Yariv Levin, say the adjustments are to prevent the unelected Supreme Court from interfering too much in cabinet and Knesset decision-making.

“The claim that this reform is the end of democracy is baseless,” Netanyahu said in reaction to the torrent of criticism. The prime minister himself is being investigated lately for corruption and other charges, meaning he is most likely to take advantage of a weaker judicial system. system.

He claimed that “the balance between the powers of the governing formula has been violated in the last two decades, and more in years,” and that the reforms would “restore the correct balance between the powers. “

But large sections of Israeli civil society, as well as existing and former lawmakers, strongly disagree.

“All functional, healthy and physically powerful democracies have a transparent separation of powers, as well as checks and balances so that no individual or establishment has too much political power,” Yohanan Plesner, president of the Israel Democracy Institute, told CNBC.

“The greatest danger emanating from planned judicial reform is that this package will do just that: concentrate all political force in the hands of the executive branch, which already provides meaning on the Knesset, our legislative branch of government. “

Netanyahu says the enactment of the adjustments is a component of the mandate he won when he was forcibly re-elected in November. But Avi Himi, director of the Israel Bar Association, said of the prime minister at a recent rally: mandate to replace the regime, you never had the mandate to destroy democracy. It’s our right to shout, it’s our legal responsibility to shout, that’s how it is in a democracy. “

The crisis is now spreading to Israel’s long-term economic and has already affected stocks and the national currency, with the Tel Aviv Stock Exchange’s benchmark TA-125 index falling nearly 4% last week.

“While it now appears that a significant political premium has been discounted in the Israeli New Shekel (ILS), threats continue for the shekel in the short term,” Goldman Sachs wrote in a research note last Friday. “With market considerations on judicial reform on the rise, a benchmarking exercise suggests that a threat premium of around 8% appears to have accumulated in the shekel. “

Zvi Eckstein, former deputy governor of the Bank of Israel, explained the threat this can pose to the country’s generation sector.

“Israel’s economy is very: 17% of Israeli production, 11% of the workforce, is dedicated to studies and progression activities in the high-tech sector,” Eckstein said. “All of this is funded through venture capital that comes from abroad, almost 90%. “

The proposed judicial reforms, he warned, now mean “enormous uncertainty about the economy, massive uncertainty about local and foreign investment in Israel. “

Plesner of the Israel Democracy Institute agreed.

“Investors, and the global economy as a whole, are not only looking for stability, but are also attracted to countries with independent establishments such as the judiciary and a strong central bank,” he said.

Restricting the independence of establishments “leads to a decline in foreign investment and a downgrade of their credit rating,” Plesner warned. “We can expect Israeli leaders to perceive the dangers they pose to the Israeli economy. “

Correction: About 160,000 protesters took to the streets of Tel Aviv over the weekend. An earlier edition distorted the city of Tel Aviv.

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