Warning of Risks of Judicial Reform to Israeli Economy From Former BCI Chief Executives

Israel’s highly debated judicial reform sparks economic concerns in the country

Two of Israel’s former Bank of Israel governors, Karnit Flug and Jacob Frenkel, have publicly expressed their concern in a joint opinion piece published in Yedioth Aharonoth – the country’s largest-circulation newspaper – of the potential damage that the judicial reform promoted by the new government of Benjamin Netanyahu might inflict on the Israeli economy and even negatively affect its credit rating.

The reform proposed by the current Minister of Justice, Yariv Levin – a confidante of Netanyahu – contains controversial elements that would drastically limit the power of the Supreme Court, since a parliamentary minority will be able to revoke its rulings when they imply changes in laws or government decisions; in addition to granting the government control over the judicial selection committee and limiting the authority of the executive’s legal advisers.

The opinion of Flug and Frenkel is shared by a broad sector of Israeli society, including its burgeoning high-tech sector, the engine of Israel’s rapid growth in the last two decades, who have called for a strike tomorrow to protest the threat of judicial reform on Israel’s liberal democracy, which they consider the mainstay of the economy. The threat of reform has also been noted by the International credit agency Standard & Poor’s (S&P), which warned earlier this month that judicial reform plans, as well as the new government’s hard-line policies in the West Bank, could negatively affect the country’s rating.

The two former BCI governors explain that in the modern world, economic growth and prosperity require stability and clear rules of the game that allow for a long-term planning horizon. Any spark of uncertainty put on the government’s commitment to the rule of law is already enough to damage the economy’s image. Furthermore, they emphasized that it is very easy to destroy an economic image and very difficult to restore it.

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