Israel’s finance minister minimizes economic downgrade – why he’s wrong
In a stunning move, Moody’s Investor Service, the leading credit agency, downgraded Israel’s economic outlook from positive to stable, on Friday, Apr. 14, albeit allowing them to maintain an A1 credit rating. But what are the ramifications of such a downgrade and does it really matter?
If you listen to Israeli Finance Minister Bezalel Smotrich, who was quoted as saying, “It’s not a big drama,” you might get the idea that it truly is nothing over which to be concerned, but there is a very significant reason why Smotrich is attempting to downplay the move. For one thing, the catalyst for change, in the economic status, was cited as the “deterioration of Israel’s governance,” which directly impacts the finance minister. In other words, he’s part of the problem which has contributed to a more negative outlook of Israel’s economy.
So, although Smotrich claims that a judicial overhaul will actually strengthen the economy, the facts on the ground belie such a claim. Once the government announced their plans for judicial reforms, as well as major societal changes, which would affect the character of Israel, investors began to get worried over what they saw as a hostile takeover of a country which they viewed to be enlightened, progressive and tolerant.
As massive protests began to take place over four months ago, financial experts began to warn about the real possibility of Israel’s economy being under an existential threat. It was at a Tel Aviv University conference, which took place in March, that Harvard professor and former chief economist of the International Monetary Fund, Kenneth S. Rogoff said, “A fundamental role of a court system in most democracies is to protect the rights of minorities. There is no economic minority that needs its rights protected more than foreign investors.” Rogoff went on to say, “It’s not just the foreign [investors] that will suffer – all investors and entrepreneurs in Israel which have helped the economy tremendously are going to be scared by this as well.”
According to a recent report in The Times of Israel, bank officials believe that $4 billion has already been moved out of Israel in recent weeks. Many of these investments, which have been transferred to the U.S. and Europe, include the hi-tech sector, as well as venture capital firms. Certain banking sources believe that as many as 50 companies are involved in this mass exit.
Yet, the government failed to heed the warnings that the threat of judicial reforms would scare off moneymakers and chip away at the prosperity which Israel has enjoyed, especially over the past decade. So, anyone, not paying attention, which apparently includes the finance minister, should be greatly concerned that Israel has already fallen into a fiscal deficit following a period of nine months which saw fiscal surpluses. If that’s not a worrying economic trend, then what is?
In addition to investors transferring funds from Israel to other locations, potential new investors are no longer considering Israel as an attractive venue. I24 news reported that 80% of Israeli startups say judicial reform impacts their activities, citing real fears of the loss of new customers should judicial reforms be passed.
Israel’s fiscal deficit is now 300 million shekels, a direct result of bad policies of the new government which has spent more money but has taken in fewer taxes. And the reason is a direct result of less individual spending by citizens due to inflation as prices continue to soar.
Yet, somehow, these facts seem to evade Smotrich, who says, “he does not think economists are great experts on the judicial issue and that any damage to the economy would come from the campaigns against the reforms.”
When a government is indifferent to concrete warning signs, continued massive protests and even the downgrading of its economy by a leading credit agency, one has to wonder whether there is a larger agenda behind the reforms, because most everyone else is not only paying attention but also taking prudent steps to avoid financial consequences which are obvious to all.
So, what could that larger agenda be? For one thing, if present laws are changed, enabling convicted criminals to serve as government ministers, which the law now forbids, those ministers will be able to achieve their goals of making Israel a more religious country, forcing the secular to observe whatever they legislate to be the true character of the State of Israel. That creates an effective way to not only seize power but to retain it as well. Each of these religious parties had a vested interest in making sure that all impediments are removed so that opposition parties don’t have a chance to rule. They will do whatever it takes to accomplish that – even injure Israel’s economy if necessary.
In the end, it would be hard to distinguish Israel from other non-democratic countries which promote only one voice, one expression and one political party as having total authority and legitimacy.
All of this bodes badly for Israel, given its many innovative markets and technological possibilities which could have such positive potential for all of humanity. Take away the investors with their flow of money, and who needs the BDS movement anymore?
If successful, this new government will have effectively been responsible for cutting off the country’s economic rise to the top, not to mention the development of so many advances which could possibly save lives, make daily life easier and more enjoyable while, at the same time, help to alleviate poverty through the upward mobility that would, undoubtedly, come from a booming economic growth.
It boggles the mind to think that government ministers place their personal goals of power and influence over the economic good of a country which they claim to love, but what other conclusion can be drawn?
While secular companies may not realize it, they are taking the sage advice of King Solomon who wrote, “A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.” Proverbs 22:3.
The question is, will this Israeli government coalition continue on “blindly,” causing not only themselves to suffer the consequences, but dragging all the rest of us into the abyss as well?
A former Jerusalem elementary and middle-school principal and the granddaughter of European Jews who arrived in the US before the Holocaust. Making Aliyah in 1993, she is retired and now lives in the center of the country with her husband.