A few hours after Moody's published an unusual report on Israel's economic outlook, Chen Herzog, chief economist of BDO, a consulting firm, explained Tuesday evening the future economic implications.
What does Moody's report mean?
"Moody's report is a strong warning signal and another indication of the economic damage caused by the legislation. Moody's is not yet in the event of a credit rating change, but the report makes it clear that continued damage to the separation of powers increases Israel's risk premium. Moody's is basically saying that we are taking giant steps toward lowering Israel's credit rating."
The Knesset approved the cancellation of the reasonableness grounds
Moody's, Morgan Stanley and Citibank issued investment warnings for Israel. How serious is the situation for Israel?
"These warnings are as serious as a downgrade. The world's largest financial institutions are saying and signaling that Israel is risky to invest in, and this has a direct impact on investments in the entire economy – in high-tech, industry and capital markets."
Moody's has spoken out strongly today, including Moody's CEO. Is this a signal ahead of Israel's credit rating?
"Moody's signaling is twofold. Moody's refers to Israel's growing risk because of the legislative policy itself, and there is also a crisis of trust here. An economy is based on trust, and when the prime minister and finance minister promised that the legislation would be consensual, there is a breach of trust here. They assured Moody's that all legislative action would be consensual, the very fact of breaking that promise creates a severe crisis of confidence, and confidence is a critical component of the economy in general and the international economy in particular."
Credit rating (illustrative), photo: Getty Images
Do you think other rating agencies might act like Moody's?
"The three rating agencies based their current credit rating on a scenario in which any legislation is done by agreement only. Therefore, all rating agencies must reconsider the significance, and there is a real and immediate risk of Israel's downgrade."
How will the Israeli citizen feel the black flags that have been raised?
"We are already feeling the heavy price of this legislation in our pockets in sharp declines in the stock market and in the rise in the dollar exchange rate. This means billions of shekels in losses in the public's pension and savings and an increased risk of an interest rate increase, which will raise the cost of living and mortgages and force the state to raise taxes. This is in order to finance the interest rate that will rise because of the rating increase."
Protest on Begin Road in Tel Aviv, photo: Avi Cohen
What steps should the Minister of Finance take to avoid a drift of more such actions by banks and rating agencies?
"I think the first step that needs to be is restoring trust. The finance minister could not have reached a situation in which rating agencies are surprised by this move. The state must act transparently and credibly. The trust of the international markets must be restored, and a new course must be recalculated, in which relations of trust are restored and legislation is promoted only by broad consensus, as the state promised it would do. The message of freezing legislation for only a limited time only increases economic uncertainty and harms the economy."
Will we see an impact on the dollar, euro and stock market tomorrow, following Moody's, Morgan Stanley and Citibank?
"When the world's largest banks warn against investing in Israel, there is an economic price. We have already seen sharp declines in the stock market and a weakening of the shekel in recent days, and this trend is expected to continue in light of the warnings of these leading international bodies."
Dollar exchange rate (illustrative), photo: AP
The Forum of Economists for Democracy said: "The coalition did not heed the warnings of economists from Israel and around the world, credit rating agencies, and friends of Israel around the world, including President Biden, that promoting a regime coup without broad consensus would severely harm the Israeli economy. Less than 24 hours after the law to reduce reasonableness was passed by the Knesset, credit rating companies and investment banks published recommendations to avoid investing in Israel. These recommendations will cause heavy losses to savers in Israel and to the business sector as a whole."
Wrong? We'll fix it! If you find a mistake in the article, please share with us