Moody's SVP: Israel needs a strong judicial system

Benjamin Netanyahu and Bezalel Smotrich credit: Tali Bogdansky
Benjamin Netanyahu and Bezalel Smotrich credit: Tali Bogdansky

In justifying Moody's downgrade, Kathrin Muehlbronner said in Israel where the government controls the Knesset, the judicial system is especially important.

"The main reason for downgrading Israel's credit outlook was the changes in the judicial system that the government plans, which lowers its ability to review procedures," said Moody's SVP sovereign risk group Kathrin Muehlbronner in a webinar held by the international ratings agency to explain its decision.

She added, "If the government will control the appointment of Supreme Court judges that will harm the independence of the institution of the judiciary. The strength of the judicial system is important, even more so in a country like Israel in which the government controls the Knesset, the role of the president is only symbolic and the local authorities don't have much power. There are really only two branches of government, the executive and the judiciary. Other checks and balances that exist in other countries are relatively weak in Israel."

"Our main concern is the executive pushing through important changes to the institutional setup of the country at such a speed and without any dialogue really - for us it is not a sign of strong institutions."

She continued, "The protests exposed deep disagreements in Israeli society that touch on more than the judicial reform itself."

When she was asked if the demonstrations led to the credit outlook downgrade, as the coalition claims, or if the protests prevented even bigger damage, she responded, "In a certain sense, you can say that it was everything that had a negative effect, and so we cut the rating outlook. But, we were definitely encouraged by the strength of civil institutions in Israeli society, and also by the security establishment, which was in opposition to the government's reform. At the moment, everyone is waiting to see what will come of it. There are negative and positive scenarios that could come about, but it's still too early to tell."

Last Friday evening, Moody's announced that it was leaving Israel's credit rating unchanged at A1 but cutting the credit outlook from positive to stable. This is the first time since the Covid crisis that Israel's credit outlook has been cut. Moody's said, "While mass protests have led the government to pause the legislation and seek dialogue with the opposition, the manner in which the government has attempted to implement a wide-ranging reform without seeking broad consensus points to a weakening of institutional strength."

However, Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich rejected the criticisms expressed by Moody’s of a deterioration of governance in Israel, claiming that the rating agency did not understand the situation correctly. "The fear raised by the Moody’s analysts concerning the controversy among the public and its effect on Israel’s political and economic stability is natural for anyone who is not familiar with the resilience of Israeli society," they said.

Published by Globes, Israel business news - - on April 17, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Benjamin Netanyahu and Bezalel Smotrich credit: Tali Bogdansky
Benjamin Netanyahu and Bezalel Smotrich credit: Tali Bogdansky
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