The main factor in Moody’s downgrade of Israel’s credit outlook last week was concern over a threat to the country’s judicial independence if the overhaul passed into law, the ratings agency said Monday.
“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.”
Kathrin Muehlbronner
“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,” senior vice president Kathrin Muehlbronner said in a webinar held to explain the decision.
“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.”
If the government will control the appointment of Supreme Court judges, that will harm the independence of the institution of the judiciary, she said.
“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,” explained Muehlbronner.
Judicial reform protests a factor but not the main one
Muehlbronner added that the protests that have engulfed the country for the last 15 weeks were also a factor, but not the main one, in its decision to downgrade the credit outlook from positive to stable.
“The protests exposed deep disagreements in Israeli society that touch on more than the judicial reform itself,” she said. “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.”
After Moody’s announcement on Friday, Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich said the decision was based on a lack of understanding of what the judicial changes are.
“The Moody’s ranking analysts correctly recognize the strength of the Israeli economy in all the indices and the correct and responsible economic leadership that we lead in wise management of public expenditure and promoting growth reform,” Netanyahu and Smotrich said. “The fear of Moody’s analysts from public controversy and its influence on Israel’s political and economic stability is natural for those who do not know the resilience of Israeli society.”