June 24, 2024

Will Israel’s Reform Threaten Its International Status?

Protests continue in Israel over recent judicial reforms. Critics claim that recent actions by Israel’s Supreme Court are bringing the country to the brink of autocracy.
AFP

Recent political actions are likely to have an impact on Israel’s economy and its international reputation as a hub for start-up companies.

Thousands of Israeli protesters took to the streets of Jerusalem for a third day in a row on Monday as the country pushed for a crucial vote on legislation that would severely weaken the Supreme Court’s authority.

Although several factions in the Israeli parliament tried to block it through last-minute negotiations with the ruling right-wing Likud party, the vote passed 64-0 after the opposition left the 120-member Knesset in protest. The crucial vote marks the first major victory for the country’s current government in its seven-month tenure and could now lead the Jewish state to what critics say is on the brink of autocracy.

Hundreds of thousands of demonstrators have converged on Jerusalem and Tel Aviv for 29 consecutive weeks of mass protest to try to persuade Israeli Prime Minister Benjamin Netanyahu to stop his efforts to limit the power of the judiciary—and, in turn, remove the only administrative check and balances on his government’s power.

Even before the decisive vote in the Israeli Parliament, two-thirds of the country’s start-up companies said they have taken steps such as withdrawing cash reserves, moving headquarters outside Israel, relocating employees, and making layoffs, according to Israeli industry. survey conducted by Start-Up Nation Central, published on Sunday.

Already about 68% of Israeli startups are taking legal and financial steps in response to the judicial overhaul, according to the Startup Nation Center survey. The Israeli industry organization represents 521 companies in the sector. This could be a huge blow to the Israeli economy.

Specifically, 22% of companies said they diversified cash reserves outside of Israel. 37% of investors say that companies in their portfolios have withdrawn some of their cash reserves and moved them abroad.

In addition, 8% of companies report that they have already begun the process of changing headquarters locations, and 29% report that they intend to do so soon. Among investors, 20% said that companies in their portfolios have started to change the location of their headquarters and 69% said that companies in their portfolios plan to do this in the future.

Investments outside of Israel are growing as part of Israel’s venture capital investment strategy. According to the survey, 67% of investors are investing or considering investing in foreign companies.

“As an organization with a mission to strengthen the technology industry in Israel, it is our duty to share this data with decision makers in Israel and provide an up-to-date picture of the situation as it progresses,” Central Nation Start-Up CEO Avi Hasson said in a release

Israel’s world-renowned technology sector is one of the main drivers of growth in the country.

“Companies and investors are taking active steps to move activity away from Israel and this behavior,” Hasson said in a release. “It will be difficult to reverse trends such as registering a company abroad or launching start-ups outside of Israel.”

In Monday an interview to the Israeli business magazine Globes, Yonatan Katz, chief economist for the Israeli firm Leader Capital Markets, said that he predicts that the political situation will affect the forecasts of the rating companies on Israel’s credit level and may even harm Israel’s rating forecast.

In the last 90 minutes of trading, after the Knesset passed the rationality standards law on Monday, the Tel Aviv 35 Index fell sharply, losing 2.21% on the day. Regarding interbank trade, after the Knesset passed the ‘rationality’ law, the shekel also weakened significantly.

The shekel jumped again the following morning, and the rate against the US dollar rose by 2.49% compared to Monday’s representative rate, reaching NIS 3.71 per $1. Likewise, the shekel-euro rate rose 2.13% to NIS 4.1041 per €1.

Katz said he believes that the political uncertainty in Israel is the factor driving the strong volatility in Israel’s stock and foreign exchange markets because it will also affect the rating companies’ forecasts of Israel’s credit level and may even harm Israel’s rating forecast.

Foreign banks and investment companies find it difficult to read the story in Israel.

In a recent update on judicial reform, published by Citigroup Inc. (NYSE: C), wrote Michael Wiesen, vice president and fixed income trader at Citigroup now that the “government has empowered itself to ignore the decisions of the Supreme Court on its actions, it gets much more complicated and more dangerous.”

On Tuesday, Morgan Stanley downgraded Israel’s sovereign credit to an “unfavorable position,” according to reports from Haaretz and Reuters. The Morgan Stanley research note comes as Moody’s, one of the “Big Three” credit rating agencies, is to issue a special report on Israel later on Tuesday. Earlier this year, that agency downgraded Israel’s credit outlook to “stable,” citing concerns about the legislation’s impact on the independence of the judiciary.

On Tuesday, Israel’s Attorney General Gali Baharav-Miara is against the government in response to a high court petition against a law passed by the coalition in March that prevented the court from ordering a prime minister to recuse himself from office, asking for the legislation to be scrapped.

Baharav-Miara argued in a filing to Israel’s High Court of Justice that the Knesset abused its authority to improve Netanyahu’s legal standing while he was on trial for graft charges and asked “to be allowed to operate in violation of court rulings,” according to Tuesday’s announcement. report from The Times of Israel.

On Monday, White House spokeswoman Karin Jean-Pierre released a statement criticizing the passing of the judicial reform law.

“It makes no sense for Israeli leaders to rush this – the focus should be on bringing people together and building consensus,” Biden said in statement available to Axios on Sunday.

“From the perspective of Israel’s friends in the United States, the current judicial reform proposal appears to be becoming more divisive, not less.”

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