None other than the famed financial firm Goldman Sachs has come out and stated that the judicial reforms proposed by Benjamin Netanyahu’s government could harm Israel’s economy and cause the Shekel to drop in value. The assessment came as part of a report issued by Goldman Sachs’ economics research department. And it also came just after Israel’s own major firm Papaya Global announced that it was divesting its funds from Israeli Banks because of the judicial reform plan.
This constitutes yet another blow to Israel’s Prime Minister Benjamin Netanyahu’s aspirations to effect a complete overhaul of Israel’s judicial system, including new restrictions on the authority of the nation’s attorney general and a new law that would allow an absolute majority of at least 61 votes in the Knesset to override any Supreme Court decision, effectively mooting the court. This, opponents say, would leave the government free to do whatever it wants in the absence of any oversight, thus harming Israeli democracy and, in turn, scaring off foreign investors who would lose faith in the country.
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Goldman Sachs acknowledged that “a definitive judgment” on the matter at this time “seems premature,” because the proposed reforms have yet to be implemented. And, should the Shekel actually depreciate considerably, the Bank of Israel could always step in and a buy up Shekels with foreign currency reserves to prop it back up.
“But perhaps most importantly, there are few signs that recent developments would affect the institutional hedging behavior of local investors, which likely underpins the striking correlation between USD/NIS and global tech stocks that have driven the shekel for years,” said Goldman Sachs.
“Overall, while the recent increase in political uncertainty is concerning and could continue to be reflected in some further shekel weakness over the short-term, the fundamental links that have been established between USD/NIS and global tech stocks will take time to erode.”
Goldman Sachs pointed out that judicial reforms proposed by Prime Minister Benjamin Netanyahu’s government have “sparked concern among some investors, including locals, that the reforms could reduce judicial independence in Israel, and that – for example, by eventually reducing FDI (foreign direct investment) or tech sector growth in Israel – the shekel may become more subject to domestic policy risks than it has been in recent years. In line with these concerns, USD/NIS has seen a notable deviation this week from its typical correlation with global tech indices.”
“Overall,” Goldman Sachs concluded, “while the recent increase in political uncertainty is concerning and could continue to be reflected in some further shekel weakness over the short-term, the fundamental links that have been established between USD/NIS and global tech stocks will take time to erode.”
Last week, Eynat Guez, Co-Founder and CEO Papaya Global, an Israeli fintech unicorn explained her company’s decision on divestment tweeting, “Following Prime Minister Netanyahu’s statements that he is determined to pass reforms that will harm democracy and the economy, we made a business decision at Papaya Global to withdraw all of the company’s funds from Israel, in the emerging reform, there is no certainty that we can conduct international economic activity from Israel, this is a painful but necessary business step.”
