Will Meridor’s resignation impact the economy?

“The credit agencies are going to downgrade us soon,” Tel Aviv University Professor of Economics Assaf Razin told The Jerusalem Post.

Budget director Shaul Meridor attends a press conference at the Ministry of Finance in Jerusalem on December 11, 2017. (photo credit: YONATAN SINDEL/FLASH 90)
Budget director Shaul Meridor attends a press conference at the Ministry of Finance in Jerusalem on December 11, 2017.
(photo credit: YONATAN SINDEL/FLASH 90)
Sunday’s public resignation of Shaul Meridor, the Finance Ministry’s head of the Budget Department, has raised questions about what is going on at the top echelon of the ministry.
In his resignation letter, Meridor, a seasoned public-official with roughly two decades of experience under his belt, wrote to Finance Minister Israel Katz that “you don’t allow me, and other public servants in other wings of the ministry, to do what we know how to do.”
He later slammed Katz for, allegedly, making decisions under the “influence of narrow interest [groups]” and “creating fictional [data] sources to offer extra budgets.
“I have never seen such behavior,” wrote Meridor. “I can no longer be a part of the system and offer legitimacy to a series of wrong decisions.”
While much more discreet, the July resignation of the ministry’s accountant general Rony Hizkiyahu also raised an alarm bell of the functioning of the ministry. Lauded as a key factor in getting the country’s credit rating to go up to AA- in 2018. Hizkiyahu’s resignation was reported as being tied to the continued failure of the current government to pass a budget.
 What do the resignations mean for Israel’s financial standing?
“The credit agencies are going to downgrade us soon,” Tel Aviv University Professor of Economics Assaf Razin told  The Jerusalem Post, “this could be a slow step by step process which will only end when we have a working government.”
According to Razin, it doesn’t really matter who will replace Meridor or Hizkiyahu. “Their replacements will not be able to resist the dictates of the Finance Minister, who is simply obeying the Prime Minister,” he said, suggesting that Meridor and Hizkiyahu are “leaving a sinking ship.”
“It’s very clear we are going to have an election-driven economy until elections are held in mid 2021 and a functioning government is created,” he said. “To achieve this, Netanyahu is going to have a populistic election campaign policy serving a small segment of the population, harming the majority.
“We will feel this, not right away, but a few years down the road,” he said, citing the examples of Mexico, Argentina and Chile as democracies which went bust due to a populistic short-sighted policy and had sovereign debt default as a result.
Despite the urgent pleas of nearly all serious economists in the country, including Bank of Israel governor Amir Yaron who called on the government to pass a budget for 2021 on Sunday evening, the country has no budget. Instead, Likud and Blue and White agreed to kick the can down the road when they postponed making a decision by 100 days.

So how is the country being managed in the meantime? Katz and Netahyahu are using so-called “boxes,” a stop-gap measure meant to fund state-projects during unexpected emergencies, to deliver funds as they see fit – not just to handle the coronavirus pandemic, but also for health and education.
Katz, for example, agreed to add an extra NIS one billion to aid the poor in addition to NIS 4.2b. ear-marked for education, TheMarker reported on Sunday.
The move bypassed the usual decision-making process in the ministry and was announced on social media by both men.
According to Tel Aviv economist Dr. Wael Kraiem, “The Deep State, and by that, I mean the civil servants who work in the institutions that hold up the country, and the elected officials, are in a state of rivalry. This is the most toxic relationship you can think of, I can only compare it to soldiers who are fighting each other during a battle [instead of the enemy] the country cannot afford this during a pandemic.
“We have had moments in the past when high-ranking officials quit,” he said, “but at this moment, when we are going to be forced to seek loans in the very near future, this is a disaster.”
Noting that Katz was not present during the Knesset debate about postponing the budget he said “the Finance Minister isn’t even there, why should his own officials offer him help now when it is clear he offers them no backing at all?”
Kraiem added that, according to the public letter Meridor released, Katz has no problems justifying his decisions with unsupported data.
“Imagine what this means,” he told the Post, “Katz can decide whatever he likes, and if anyone objects, he blames it on the civil servants and says: ‘Well that’s what they told me.’”  
“The country cannot function without a budget chief,” he warned, “and politicians don’t understand the importance of this historical moment.”
President of the Israel Democracy Institute (IDI) Yohanan Plesner warned of a soon-to-be-felt lack of “professional management” in the ministry and pointed to how the State Attorney’s Office and the police are also without key leadership positions.
Since the 1985 hyperinflation, Israel “maintained the Budgets Department’s unique stats as a fiscal gatekeeper,” Plesner said. Warning that if elected officials are able to allocate funds without any responsibility this will “impact both short- and long-term attempts to stabilize the economy.”