Israel Supreme Court Jerusalem (Wikipedia)
JP Morgan has now joined the growing list of financial firms and corporations that are expressing concerns about the future of Israel’s economy should the country push through judicial reforms proposed by Prime Minister Benjamin Netanyahu’s coalition government. Israel’s opposition has said that the reforms, which would greatly curtail the authority of Israel’s Supreme Court and its Attorney General, would harm Israel’s democracy thereby eroding foreign confidence in the country and hurting its economy.
The opposition in Israel’s Knesset calls the reform plan a “threat” to Israel’s democracy. The government, in turn, maintains that its program is intended to “restore” democracy in Israel as Israel’s Supreme Court, it maintains, has appropriated too many powers for itself over the years and is not elected by the public as the Knesset is.
The warning from JP Morgan came in the form of an internal memo titled “Israel Strategy: Domestic volatility flares up” that was revealed by Israeli media. And its release came after another renowned American financial firm, Goldman Sachs, issued its own warning that the judicial reforms proposed by Benjamin Netanyahu’s government could harm Israel’s economy and cause the Shekel to drop in value.
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So, what did JP Morgan say?
The memo stated that “the volatility across Israeli local assets has notably increased recently, as renewed geopolitical tensions were added to investor concerns over the government’s potential judicial reforms.”
And JP Morgan warned, “Israel’s local markets have seen a flare-up in idiosyncratic risk as increased geopolitical tensions were added to investor concerns over plans for judicial reforms.”
“The judicial reform has raised concerns regarding institutional strength and the investment climate in the country,” added the memo. “Any material deterioration in the institutional strength can have an impact on investment flows, however, the scale and timing of such are difficult to judge.”
And JP Morgan further warned that “there may also be downside risk to Israel’s sovereign credit rating, but we would expect the market impact of that to be limited.”
“The judicial reforms can have medium-term investment and growth implications that are hard to quantify,” added the firm which went on to compare what is being proposed in Israel to what happened in Poland when that nation implemented similar judicial reforms following that led to a weakening of democracy there which in turn caused foreign investors to lose confidence in that nation.
The JP Morgan warning came just a week after Israeli startup Papaya Global, a fintech unicorn that offers a cloud based platform for companies to handle their payrolls, decided to divest itself of Israeli banks due to the judicial reform plan proposed by Benjamin Netanyahu’s government.
And the Governor of the Bank of Israel himself warned Netanyahu that the plan could harm foreign investment in Israel since it would weaken Israel’s democratic system.
