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Israeli Bank: institution autonomy vital

This, according to the country’s Central Bank Governor Professor Amir Yaron.

By Erin Viner

Institutional independence is critical for Israel’s sovereign credit rating, the country’s central bank chief told Members of Knesset (MKs) on the Finance Committee.

Remarks by the dual American-Israeli professor come following judicial reform plans by the new government of Prime Minister Benjamin Netanyahu.

“As an economist, I would point out in this context that many studies have shown that strong and independent institutions are essential for a developed and thriving economy,” Prof. Yaron replied to questioning by Committee Head Moshe Gafni.

“Accordingly, the credit rating agencies examine these areas too. It is, therefore, important to ensure they are kept as such in any process being advanced,” he said.

Dozens of Israeli economists have urged Israeli Prime Minister Benjamin Netanyahu to scrap the plan.

S&P Global Ratings Director Maxim Rybnikov has already spoken out about how the judicial shake-up could affect Israel’s sovereign credit rating. Those warnings have been repeated by important international financial institutions, including J.P. Morgan and Barclays, which have issued reports cautioning that the proposals could also adversely affect the country’s investment climate.

Other international concerns over Jerusalem’s plan were expressed by French President Emmanuel Macron during the Israeli Premier’s visit to Paris last week.  According to a report by the Le Monde daily, Macron informed Netanyahu that France would no longer regard Israel as a liberal democracy is the judicial reform is approved by the Knesset in its current form.

Domestically, business leaders have joined Opposition MKs, legal officials and advocacy groups that fiercely reject the proposal, while tens of thousands of Israelis have demonstrated nationwide against it for the fifth straight week.

If written into law, the proposed judicial changes would strengthen political control over appointments of judges, including on the Supreme Court, while weakening that body’s ability to overturn legislation or rule against the government. Critics charge the move will threaten democratic checks on ministers by the courts, politicize the judiciary and compromise its independence, harm minorities, foster corruption, and hurt Israel’s legal protection abroad.

Netanyahu nevertheless insist the changes will restore balance to the three branches of government and boost business by cutting back unnecessary litigation. His government insists its proposals are needed to curb overreach by judges

In other developments, Bank Governor Yaron also voiced opposition during his Finance Ministry testimony against legislation of a bill Gafni has submitted to the Knesset to freeze interest rates on mortgages for families purchasing their first home – saying it would defeat its own purpose of lowering costs while hurting Israel’s free market credentials.

Monthly mortgage payments have seen a steep increase since April as part of the Bank of Israel’s program to combat inflation. Gafni said he was planning to bring the bill to the government’s ministerial legislation committee on Sunday.