Israel's currency weakens 6 per cent amid fears over judicial reforms

The shekel was the third-worst performing currency globally in February

Israeli Finance Minister Bezalel Smotrich is a strong advocate for judicial reforms that many high-profile economists view as destabilising. Reuters
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Israeli government plans to overhaul the country's judicial system have unsettled markets, causing one of the most severe currency depreciations internationally in February.

The economy contracted by 6 per cent last month and hit a three-year low last week, with only the Russian rouble and Korean won faring worse.

For the past two months, financiers, economists and entrepreneurs domestically and abroad have been warning of the destabilising effects of Prime Minister Benjamin Netanyahu's judicial plans.

The proposed reforms include an “override clause” that would allow the country’s parliament, the Knesset, to re-legislate by simple parliamentary majority laws that the Supreme Court strikes down.

  • Allowing ministers to appoint their own legal advisers, and taking away the authority of the latter to make binding decisions

Other changes would give the government control over the selection of judges, and ministers would be able to select their own legal advisers, who would no longer have the authority to make binding decisions.

In February, 56 leading US-based economists signed an open letter to Israeli Prime Minister Benjamin Netanyahu criticising the judicial reforms.

Former World Bank chief economist Anne Krueger, one of the signatories, told The National: “It’s established throughout the world that an independent judiciary is essential to a well functioning body politic.

“One of the things authoritarian governments first rush to do is prevent sources of independent commentary.”

Fitch Ratings maintained Israel's A+ credit rating on Wednesday, but cited the legal reforms as a key area of future concern.

Finance Minister Bezalel Smotrich said Fitch’s verdict showed that the government was “taking all the right steps”.

The finance minister claimed that the government's judicial reforms would bring economic benefits, saying that “the correction we are bringing will strengthen the State of Israel.”

Mr Smotrich drew strong criticism on Tuesday for saying that the Palestinian town of Hawara should be “erased”. His comments came after an unprecedented settler rampage through the West Bank town, burning Palestinian homes and cars, killing one resident and injuring more than 100. Israel's top general in the region described the riot as a “pogrom”.

A “pogrom” is a mob attack, approved or condoned by the authorities, against a religious, racial, or national minority.

The violence erupted following an earlier attack in which a Palestinian gunman shot dead two Israeli settlers.

Updated: March 02, 2023, 9:09 AM