Bank of Israel chief comes out against ‘hasty’ overhaul that could harm judiciary

Amir Yaron tells CNN plan lacks consensus, which could lead firms to move funds out of country, causing brain drain; voices confidence leaders won’t intervene in central bank

Michael Bachner is a news editor at The Times of Israel

Bank of Israel Governor Amir Yaron speaks in an interview with CNN aired March 15, 2023. (Screenshot: CNN; used in accordance with Clause 27a of the Copyright Law)
Bank of Israel Governor Amir Yaron speaks in an interview with CNN aired March 15, 2023. (Screenshot: CNN; used in accordance with Clause 27a of the Copyright Law)

Bank of Israel Governor Amir Yaron warned that the government’s sweeping judicial overhaul was “hasty” and could harm the justice system’s independence, criticizing the expedited and unilateral fashion in which the bills have been blitzed through the Knesset’s committees and plenum in recent months.

“Right now, the changes [introduced] in the judicial reform could weaken some of this independence. Moreover, the process itself is hasty and does not have a wide agreement in the public,” Yaron told CNN in an interview aired early Wednesday.

Yaron said one of the reasons an orderly and broadly agreed-upon process was important was to stop companies from directing investments away from the Israeli market, something that several major firms have already announced they will do.

“We have seen some high-tech leaders and industry leaders telling us that maybe first investments won’t come in, and some are even talking that they might take their business elsewhere,” he said.

“In the long run, the implication might be, basically, brain drain, etc., and this is why this should be handled with care,” added Yaron. “This has huge implications, and this is why it’s imperative that we maintain the strength and independence of this institution, and this is done in a way that has a wide acceptance in the public and it’s a transparent process.”

Yaron sought to quell fears that the government may also try to curb the independence of the Bank of Israel itself.

“The independence of the governor, the independence of the central bank, are critical to the economy,” he said. “Any country that has tinkered, let alone weakened, the independence of the central bank has suffered dire economic consequences. I believe all our leaders and decision-makers ultimately understand this and therefore would not come close to touching the independence of the bank.”

He noted that when Foreign Minister Eli Cohen recently urged Finance Minister Bezalel Smotrich to intervene to stop the steady increase of the interest rate, Prime Minister Benjamin Netanyahu and Smotrich “immediately stated very clearly that only the governor decides on the interest rates.”

Yaron also said he was doing whatever he could to curb mounting inflation, saying that slowing rate hikes too early was dangerous and acknowledging that the process commonly involves “pain.”

A forum of dozens of senior Israeli businesspeople who manage or own many of the country’s largest companies issued a statement backing Yaron’s warning.

“The governor’s concern is also our concern,” the Business Forum said. “It is the duty of the Bank of Israel governor to express an independent and professional opinion free of external considerations and without coming under political pressure.”

But Likud MK Boaz Bismuth slammed Yaron in an interview with Army Radio, saying: “Without offending the governor or belittling his professionalism, I didn’t see him win the election on November 1.”

He added on Twitter: “The new Israeli government: Foreign minister — the [BoI] governor; interior minister — the attorney general. Here, we’ve saved [the need for] elections.”

In 2022, the Bank of Israel started to steadily hike the benchmark interest rate from a low of 0.1% last April to 3.25% at the end of 2022. The central bank last raised its key lending rate by 50 basis points to 4.25% in February in a bid to rein in inflation, which has been hovering above 5%, and bring it back into a target range of between 1% and 3%.

Prime Minister Benjamin Netanyahu (R) chairs the weekly cabinet meeting, flanked by Justice Minister Yariv Levin, at the prime minister’s office in Jerusalem on March 5, 2023. (Gil Cohen-Magen/Pool/AFP)

Netanyahu’s hard-right coalition has prioritized a package of controversial proposals to transform the justice system, which are being spearheaded by Justice Minister Yariv Levin. The proposed legal overhaul would grant the government control over the appointment of judges, including High Court justices, and severely limit the High Court’s ability to strike down legislation — concentrating almost all governing authority in the hands of the political majority.

Amid a torrent of criticism by top public figures, jurists and economists, as well as mass demonstrations throughout the country and increasing threats of reservists that they will refuse to serve if the overhaul passes, pressure has been growing on the coalition to reach a compromise that will receive broad public backing.

The Moody’s rating agency said last week that the plan could weaken the country’s institutional strength and negatively affect its economic outlook. Earlier, Fitch Ratings affirmed Israel’s A+ credit rating with a stable outlook, citing the country’s “diversified, resilient” economy, but also warned that the planned judicial changes could have a “negative impact” on the country’s credit profile.

A group of hundreds of Israeli economists issued a fresh warning earlier this month that a financial meltdown could occur more “powerfully and faster” than they had originally forecast when they penned an earlier “emergency letter” cautioning that the far-reaching shakeup could have grave implications.

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