Pictured: Israeli protesters attend a rally against Prime Minister Benjamin Netanyahu’s new right-wing government in the coastal city of Tel Aviv on February 4, 2023. (AFP via Getty Images/JACK GUEZ)
Jakarta, CNBC Indonesia – The Israeli economy is haunted by some concerns from investors. This comes after massive protests in the country in recent weeks.
Collect CNBC International, citizens began to take to the streets to protest the policies of Israel’s parliament, the Knesset, which wants to create laws to change the way the country’s justice system is. Critics of the government say the regulations could harm democracy.
The law is believed to change Israel’s justice system by giving the government complete control over judicial appointments. It would also weaken the nation’s Supreme Court to the point of effectively ending its role as overseer of executive and legislative powers.
In a sign of the seriousness of the opposition to the proposed law, graduates of elite and reserve military programs in key parts of the Israeli army, have also threatened not to show up for duty. They started a petition to protest the change.
Ministry of Finance Chief Economist Shira Greenberg wrote that ‘credit rating agencies are likely to react to these developments’. This can be seen from the reactions of the three rating agencies S&P Global, Moody’s and Fitch.
Fitch said the proposed justice reforms “could negatively impact Israel’s credit profile”. This, the agency writes, weakens governance indicators and institutional oversight leads to worse policy outcomes or continued negative investor sentiment.
“The adoption of similar rules in other countries, which he said has led to a significant weakening of the World Bank’s governance indicators. These indicators play an important role in shaping the ratings assigned to countries,” said Fitch.
Fitch also pointed out that the judicial proposals in Israel met “strong civil society and political opposition”, which in turn divided Israeli society. Israel is the second largest economy by GDP in the Middle East after Saudi Arabia.
Meanwhile, Moody expressed concern where the decision will be affect investors’ confidence and their rating of the Jewish State. In turn, this has an effect on investment fundraising.
“Implementation of such changes would clearly negatively impact our assessment of institutional and governance strength, which we have so far considered a positive feature of Israel’s sovereign credit profile,” he wrote.
MarketVector CEO Steven Schoenfeld also said he believed investors had a right to be concerned about the situation in Israel. MarketVector maintains a stock index, including the Blue Star Fund, which Schoenfeld created to track Israeli stocks.
“Most of the attention is in the important Israeli venture capital and private equity areas,” Schoenfeld said.
“You can’t separate Israeli unicorns and startups and boosts from the equity market. As funding slows, we will see the impact on the stock market, and it is happening right now.”
Tel Aviv itself does not remain silent with this concern. Sources said Bank of Israel Governor Amir Yaron had warned Prime Minister Benjamin Netanyahu last week that the political crisis could become an economic crisis, and that “the problem must be addressed”.
Netanyahu’s cabinet members argue that a compromise is still possible. Another source, said government representatives were in contact with top Israeli business executives in a bid to mitigate the impact on the economy.
(sef/sef)
