"You are the governor of the Bank of Israel, the economic adviser to the government, and suddenly I hear you talk about the judicial reform being liable to harm the economy. There’s a political debate here that goes to the root of the matter. Why do you have to express a view on it?" Knesset Finance Committee chairperson Moshe Gafni asked Governor of the Bank of Israel Amir Yaron at the opening of a committee session yesterday. "Do you think that the governor of the Bank of Israel should express a view when half the residents of the State of Israel think otherwise?" Gafni continued.
To what was Gafni referring? Apparently to Yaron’s meeting with Prime Minister Benjamin Netanyahu two weeks ago, at which he shared with Netanyahu his impressions of the fears expressed by the international credit rating agencies and by large financial institutions during his visit to the World Economic Forum in Davos.
Was Yaron not supposed to convey to the prime minister what he had been told and what he thought about it? He is, after all, the government’s economic adviser. Does the fact that the coalition has 64 Knesset seats change the fact that Yaron heard fears expressed about the legislative imitative? That’s the reality. And lo, within less than two weeks, Netanyahu entrusted his confidant, Minister of Strategic Affairs Ron Dermer, with the task of liaising with the rating agencies (whether or not that is a good idea is a separate question).
At any rate, Yaron was ready for the possibility that he would be asked about the judicial reform plan in the Knesset, and prepared a statement in advance about the connection between the judicial overhaul and Israel’s credit rating. He introduced his remarks by saying that, in view of Israel’s strong macro numbers, "it can be said with confidence that our position is good in comparison with most of the developed economies."
Then, with pointed brevity, came the more sensitive part of Yaron’s statement: "As an economist, I would point out in this context that many studies have shown that strong, independent institutions are a vital component for the maintenance of a developed, prosperous economy. Accordingly, the credit rating agencies examine these areas as well. It is therefore important to ensure that these characteristics will continue to be preserved in any process that is introduced."
As far as the content of his statement is concerned, Yaron said nothing new. The same messages, about the importance of strong, independent institutions for economic prosperity, have been sounded one way or another in the past couple of weeks by almost all the senior economists in Israel, as well as by Yaron’s predecessors in the Bank of Israel top job, Jacob Frenkel and Karnit Flug. And the credit rating agencies do indeed examine these areas: the weakening of the country’s constitutional court was one of the reasons that S&P downgraded Poland’s sovereign rating in 2016.
Nevertheless, the fairly restrained opinion that Yaron voiced in the Knesset is important. Now, it’s not just a case of warnings from academic economists, from former senior officials, or from analysts sitting in investment banks in far away London. This is a warning from the most senior professional in the Israeli economy.
Later in the committee session, Gafni declared his intention of promoting his legislative initiative for limiting interest rates on mortgages for first time homebuyers next week. Such a step would disrupt one of the main channels through which the Bank of Israel’s interest rate policy works. We shall yet see what comes of it. What is notable at this point is Gafni’s expectation that the governor of the Bank of Israel should come into line, bow his head, and simply say nothing about the planned judicial revolution, that he should not express his professional opinion because "half the residents of the State of Israel think otherwise." Unintentionally, Gafni illustrated precisely one of the fears of those who are warning against the consequences of the new legislation: a situation in which the voices of the professionals will be silenced, and will not be allowed to interfere with politicians doing whatever they like while ignoring the law, and reality.
Published by Globes, Israel business news - en.globes.co.il - on February 7, 2023.
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