The American credit rating agency Fitch Ratings is keeping a close watch on the judicial reform developments in Israel, Israel Hayom has learned. 

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The company has held a round of meetings with economic officials, with its economist – who visited Israel this week – expected to publish their decision regarding Israel in early August. 

Video: Anti-judicial reform protesters in Jerusalem

According to senior Israeli economic officials who met with members of the Fitch delegation, the company keeps tabs on the developments and has spoken with many officials and saw the anti-reform protests. 

"Fitch knows that Israel has a strong economy, but they want to see what will happen with the judicial issue. They are aware of the impact so far of the legislative process on high-tech investments and activity in general," one of the officials said. 

According to the source, for Fitch Ratings, "the non-extension of the term of [Bank of Israel] Governor [Amir Yaron] would be a worry. But they are aware that it could take a few months until Netanyahu decides on this. As we know, the prime minister only decides at the last minute."

In May, Fitch Ratings issued a special update regarding Israel, when it complemented its economic strength but expressed concern that the legislation could hurt Israel's A+ sovereign credit rating.

"Israel continues to face high levels of internal social and political tension, and the advancement of certain policies favored by the governing coalition could aggravate these strains and influence the sovereign's rating," Fitch said in a report released at the time titled "Strong Economic Growth Key to Israel's Debt Trajectory."

Similar questions are likely to be soon asked by the economists of the S&P ratings company as well, which in mid-May affirmed Israel's Aa-/A-1+ credit rating and stable outlook. 

The company's announcement said that its prediction was based on the assumption that an agreement would be reached on the judicial reform, allowing tensions to ease. 

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Prime Minister Benjamin Netanyahu on Saturday criticized the global ratings agency Moody's for downgrading Israel's credit outlook from positive to stable due to concern over the judicial reform.

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The ratings agency showed an imperfect grasp of Israeli realities and a lack of faith in the famous resilience of the local economy, Netanyahu charged in a joint statement with Finance Minister Bezalel Smotrich.

"The concern that Moody's analysts raise about the public controversy and its effect on Israel's political and economic stability is natural for those who do not know the strength of Israeli society," the statement said. "The analysts at the Moody's ratings agency correctly recognize the strength of the Israeli economy in all indices and the correct and responsible economic leadership that we lead, with the wise management of public spending and in the advancement of growth-encouraging reforms."

"As those who believe in the strength of Israeli society, its unity, and its ability to overcome disputes and crises, as it has done many times in the past, we are confident that with God's help, it will be thus once more," it said.

An earlier statement to the press attributed to "sources close to Netanyahu" said that Moody's analysts "are being affected by the atmosphere. They have friends in Israel who are telling them tall tales. Are they informed on the issue? Not really. In conversations with them, we found out that they don't really understand the details."

This article was first published by i24NEWS.

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Prime Minister Benjamin Netanyahu and President Isaac Herzog have held talks with Moody's Investor Service this week in an attempt to keep Israel's A1 credit rating.

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The company is expected to downgrade Israel's credit outlook due to the judicial reform. Last month, it warned that the controversial legislation could weaken institutions and negatively impact Israel's sovereign credit profile.

Moody's is expected to make an announcement on Friday, prompting fears over how a lowered rating would affect the country's economy, although experts believe that Israel's credit rating – rather than outlook – will remain the same.

In talks with Moody's officials, Netanyahu reiterated that investing in the Israeli economy was "the safest" option and Herzog shared about the progress in the negotiations he leads to reach a broad consensus on the judicial reform.

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Despite the external and domestic challenges Israel has faced in the past several weeks due to ongoing terrorism and the protest over judicial reform, Finance Minister Bezalel Smotrich has been putting on an upbeat demeanor and has made it clear in an interview with Israel Hayom that he is optimistic and is content with how things are unfolding in the government. The interview was carried out just before Passover. 

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"In the end, the public needs to know that we have a good and stable right-wing government that has been working hard and delivering many good things to Israelis and to the right-wing values in particular 

Q: It appears that people are feeling the exact opposite sentiment. 

"I disagree. The government was formed just over three months ago. We entered into a chaotic situation when it comes to the judicial reform bills, but on the economy, the settlement enterprise, standing tall as Israelis – we will all see the results eventually."   

Q: As finance minister, how much has the Israeli economy been damaged over the past three months?  

"It's on the fringes of the fringes."  

Q: How many billions of shekels? 50? 200?  

"I don't want to specify a number. The Israeli economy is one of the most stable and strongest economies. We have passed a good and responsible budget. The economy is a matter of sentiment and expectations. Some scaremongers have been spreading lies and have gone to big financial institutions and told them nonsense about Israel becoming a dictatorship. But despite this, the data does not show chaos. The past several months have been nothing but a small fender bender."  

Q: How do you explain the gap between what you think and the general picture created by the protests, the polarization, and the downbeat national feeling?  

"People have been brainwashed; they are being told that we are going to create "A Handmaid's Tale" reality and they are scared. Those who think that I am going to go that path don't know me and don't know my family, my values, and don't know Judaism. I am the farthest thing there is from 'A Handmaid's Tale'. We do great things, but we have not been good enough at messaging."  

 Q: Doesn't that add up to too many missteps in three months?  

"Absolutely not. The pace of events has been unreal. We entered the chaos over the judicial reform, the country was in upheaval and the media has taken a side in the protesters' favor, the talk of reservists refusing orders has not been properly addressed, and suddenly the Histadrut Labor Federation has joined. But this is not what we are worried about; we worry about delivering many things for the Israeli people."  

Q: The legislation that would let Aryeh Deri return to the cabinet despite the Supreme Court ruling and prevent the declaration of the prime minister as incapacitated in non-medical conditions is not aimed at benefiting the general public. 

"The legislation on incapacitation was a natural correction to the previous law which was stupid and pointless in a normal country. When the attorney general flirts with the surreal dictatorial proposition that she could topple a prime minister because he doesn't conduct himself to her liking, such a law is necessary. We want to preserve the people's choice at the ballot box. This is a great bill, it must be approved.

"As for the legislation on Deri, some 400,000 people voted for his party. The previous attorney general finalized his plea bargain and even said that no one could expect him to return to politics. Now they want to undo the public's democratic choice. One can think Deri is unfit to serve, and they have every right to form a party that would run on this ticket and then change the law. But there is no such law right now that prevents him from serving again; it is the Supreme Court that made up this precedent using the pretext of negating a plea bargain, which is a term that is used in totally different contexts in the legal world. This is just surreal."
 

Q: What about the bill to allow politicians to receive monetary benefits in large quantities?  

"That bill has been put on hold for now, even though its provisions make sense. Why should a person who is in charge of the state budget have to expend millions on his dime just so he can fight an indictment? The police and the State Attorney's Office did not have to pay from their private accounts when they investigated him so why should he? In such a situation, every person can use his family to help him, so why shouldn't a prime minister be allowed to do this? If this was to happen to me, would I have been able to expend 1 million shekels on legal fees? I could not even afford 100,000, so why shouldn't I be able to get help from my parents? That is just unreal." 

Q: So, your messaging has been a failure? 

"How can you have good messaging in the face of such an onslaught against you? The brainwashing against us is just uncanny. We may have had our own share of missteps and perhaps we should have moved more slowly. I have been trying to win the hearts and minds on this issue for some 15 years, it is a colossal challenge, all the big powers are against us. In recent weeks, we have gotten a crash course on just how strong the establishment is and just how strong the Left's grip is on it."  

Q: Who is the establishment?  

"The military, the police, the Histadrut, the judiciary, academia. Look at academia for example – rather than a place where pluralism thrives, it is a place where people are silenced. The establishment keeps replicating itself. Who decides who becomes an associate professor? The clique. It's like the Judicial Nominations Committee, where one friend brings another friend." 

Q: What is the problem in the military? 

"This is an organization that resists change. In Judea and Samaria, it is still beholden to the Oslo Accords paradigm. It wants calm so it collaborates with the Palestinian Authority."  

Military glass ceiling

Q: But the IDF chief of staff grew up in a religious home.  

"I respect him, and you won't hear anything bad about him from me. But I have great pain in seeing the total failure he and the top brass have presided over when it comes to countering the refusal to serve. The first letter signed by the IAF pilots was released even before the first draft of the reform was revealed. This should have been tackled back then. Those who signed it should be relieved of duty. There should be zero legitimacy for such refusals, for insubordination, and for putting the IDF into the political fray. My expectation is that this should be dealt with on the spot. You take the first people who make those statements and take their aviator badge off their chest and tell them, 'Thank you, we can take it from here'. This would have put an end to this rather quickly. 

"Apart from that, there is a military glass ceiling in the IDF that is not related to Right or Left, religious or secular. It is related to ideas that challenge conventional wisdom. I don't want a military that has only one voice where discussions lead only to one single outcome, I see this in the Diplomatic Security Cabinet meetings, which have become rather pointless. In those meetings, the IDF representative puts a PowerPoint presentation, provides an assessment with recommendations, and then the members of the cabinet speak just for the record one after another. And that's it. Is that how a discussion should be held? The result is that there is no thinking outside the box."   

Q: When it comes to security, your record is hardly a success. The Lapid-Bennett government retaliated for every missile attack. Your responses have been very different: containment 

"You are right. I have a lot of criticism over how we have handled security, but I would prefer to voice it behind closed doors or in my conversations with the prime minister. I am part of the cabinet, and I am collegial. I am willing to swallow my pride and also wield influence on things that are part of my prerogative, like deducting terrorist funds from the Palestinian Authority and legalizing new outposts. I am willing to cut some slack for the prime minister because he is after all dealing with a very strong and opinionated system that has been acting in a very specific manner."  

Q: Let me offer an alternative explanation: You have been cracking down on Palestinians by denying them various perks in prisons, and they have been responding with attacks. You don't respond to missiles, and then they increase the rocket fire. 

"We should never have contained the missiles. I can't give a good explanation for why we didn't respond, but there is a reason. One of the problems is that you cannot be fully transparent with the public with every move. If I were defense minister, there would have been a response. The first missile under this government would have elicited a very harsh retaliation that would have made it clear to the other side that you don't mess with us. I understand that there is a wider calculus at play and the rationale guiding the prime minister and the IDF. We have not responded not because we are weak and feeble but because there are larger considerations that we have to take into account (Since the interview was conducted, Israel has responded to attacks from Gaza by launching airstrikes - Y.S.)."

So Lapid and Bennett were able to respond but Netanyahu and Smotrich cannot? 

"Right. Here is a simple example. Hamas had a vested interest in preserving the previous government because Arab MK Mansour Abbas and the Muslim Brotherhood [were backing it]. Behind the scenes there Abbas was in contact with Hamas and that is why their response was different then."  

Q: What do you think about what happened with Yoav Gallant? Did you support his firing [which has since been retracted] 

"Yoav is a friend and a good guy. We managed to iron out our differences. There is no personal animosity; zero baggage. I believe he did something that is just not done. His inaction on disobedience in the military is a failure in leadership that he should not have presided over. Also, he did a thing that is just not done when it comes to loyalty to the Coalition and the prime minister. If you have something that you disagree with you talk about it in the weekly cabinet meeting. You shout all you want and make an impact in that forum. He sat down with the prime minister on a Thursday just before Netanyahu said he would get involved in resolving the judicial crisis. Then Netanyahu flew on a diplomatic engagement for the weekend, and while he was there Gallant released his statement against him and put a gun on the table. You don't do such things."    

Q: How will the talks at the President's Residence over a compromise end?  

"We have to lay the foundation of dialogue, but we don't need an agreed plan. The Coalition has a majority, and I don't think the Opposition is going to sign off on the compromise. No one asked for the opinion of the opposition during the Oslo Accords or the Disengagement Plan. We have to reach a balanced agreement; the Opposition doesn't have to agree to it; it only has to be able to tolerate it. The question is whether there is a partner on the other side. Unfortunately, this has not happened so far. Lapid doesn't want a compromise because he is a chaos agent and anarchist. He also has a vested interest in having this country set ablaze so that the government is toppled. Benny Gantz has so far shown no courage in standing up to him."  

Q: Everything will ultimately boil down to who controls the Judicial Nominations Committee. You want the politicians to be in charge; they have vowed that this will not happen.  

"We don't want control, we want balance. No one is going to be able to credibly say that a Coalition that appoints two judges during its term will be able to take over the Supreme Court. We are going to restructure the relations with the attorney general. Think about it for a moment – the minister wanted to relieve an officer from duties, at the recommendation of the Israel Police inspector general, only to be prevented to implement this by the attorney general Does that make sense?"  

Why haven't you fired the attorney general?  

"The High Court of Justice won't let us. It would be a waste of time. As far as I am concerned, it shouldn't even be called firing. Gideon Sa'ar appointed her. Would there be a situation in which Joe Biden keeps Donald Trump's cabinet? When a new government is sworn in, it is only natural that it appoints a new professional to the job. Of course, this will be done through an orderly process and through the nominations committee. I don't want to appoint a marionette. But what is the logic behind having someone who was appointed by Sa'ar, a rival to Netanyahu, stay on the job?"  

 "The relations with the US are in great shape"  

 Q: Why did you wait until the very last minute to put the legislation on hold?  

"I think it was wrong to pause the legislation process. It only hurts the prospects of finding a compromise."  

Q: SO, will the judicial reform never see the light of day?  

"No, it's not dead yet. It will move forward because it is right, correct, and clearly needed. We will do it slowly and in phases and through dialogue. However, I am skeptical as to the ability of the president to be a mediator. He violated our trust and broke hard to the Left."  

Q: Don't you think he has been genuinely trying to find a solution that benefits both sides?  

"I can't explain why he has turned. He offered a plan that we could live with only to then suggest another one 24 hours later we could not. Perhaps he saw that he could not get anyone from the other side on board and decided to cater to his base."  

Q: If talks fail, will you advance the reform in any event?  

"Of course. Just like we knew how to create balances in the Judicial Nominations Committee, we will do this now. For example, some are worried that an override clause would allow the Coalition to do away with any election. But the language specifically says that it does not apply to the election. You can set balances."  

Q: The relations with the US are at a low point. You heard President Biden say he is not going to invite Netanyahu in the near term.  

"The state of relations with the US is in great shape. The prime minister issued a great response to that statement. We had gone through more difficult periods with the Americans. President Barack Obama was keen to fight and tried to crush Netanyahu and have him unseated so that a weaker prime minister emerges, one whom he could manage. This is a very delicate dance, where you have to maintain a good relationship and know how to stand your ground."  

Q: Why the beef that the US has with you? Why didn't they want to meet you when you were there?  

"There was no discussion on having meetings with the administration officials. I was there to attend an Israel Bonds conference and met with the large Jewish groups."  

Q: Can you explain your broken English that was put on display in those speeches?  

"I wanted to show respect by speaking in English. It was a great speech; I spoke for 20 minutes, and the footage was edited so that only my gaffes were shown in the reel. That's not too bad. I saw that Israeli comedians had fun with it, and it was funny. This was the first time I enjoyed watching Eretz Nehederet. I am not too frightened by this."  

Q: Did you feel that you have become the butt of jokes?  

"I am used to this. I don't get easily frightened, and I don't really care for the media. Do you think I don't know how to pronounce the English word 'grandmother'? This was my first time giving a speech in English, and I was a bit overwhelmed. I let my guard down; I am not that great in English, and I need to invest in it. So, people laughed. If I managed to make Jews happy during these times of division and fragmentation, that's great."  

"Q: Will the government serve out its term?  

The government will complete its term. The alternative is terrible. If the Right falls, the Left returns. With all the hateful energies, they are going to steamroll us. We must preserve this government; it is good on all fronts, and it should be judged after four years."   

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Lebanon has one of the world's highest public debts in the world, standing at 150% of gross domestic product. Growth has plummeted and the budget deficit reached 11% of GDP as economic activities slowed and remittances from Lebanese living abroad shrank.

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The government hopes to bring down the budget deficit to 7.6% of GDP this year and to 6.5% in 2020.

The meeting at the presidential palace discussed measures to be taken in the near future and as part of the 2020 draft budget.

Prime Minister Saad Hariri told reporters after the meeting that the leaders have agreed on "declaring an economic state of emergency" and the formation of a committee that will follow on the situation.

Hariri added that employment in the public sector will be frozen and work will begin for a new retirement system. He said officials will work on reducing the percentage of the debt through a partnership between the public and private sectors.

President Michel Aoun said in a speech at the opening of the one-day session that everyone should make "sacrifices" in order to get one of the world's most indebted countries out of its problems.

"We have to unite our efforts to come out with solutions to the economic crisis that is strangling the dreams and hopes of our people," Aoun said.

No official details about the expected measures have been made public but economists who took part in preparatory talks for Monday's meeting said they included raising taxes on gasoline, boosting the value-added tax from 11% to 15% on luxury items, as well as fighting tax evasion.

The meeting came 10 days after international ratings agency Fitch downgraded Lebanon's ratings and as tensions on the border with Israel increased in recent days. Hezbollah on Sunday fired a barrage of anti-tank missiles in retaliation for an airstrike that targeted the group in Syria and an alleged Israeli drone attack south of Beirut late last month.

The recent developments have led for the first time in years for the US dollar to reach 1,560 Lebanese pounds on the black market, compared with the 1,500 that has been fixed since 1997.

Hariri vowed that the peg of the Lebanese pound to the American currency will remain in place.

Corruption-plagued Lebanon suffers from one of the world's highest debt ratios, high unemployment and little growth.

In July, Lebanon's parliament ratified a controversial austerity budget that aims to save the indebted economy.

Last month, Standard & Poor's Global Ratings maintained its long- and short-term foreign and local currency sovereign credit ratings, saying the country's outlook remains negative. The agency is scheduled to issue new ratings within six months.

Hariri said Lebanon has a period of six months to act and it is better "that we not become like states that collapsed."

In January, Moody's downgraded Lebanon's issuer ratings to Caa1 from B3 while changing the outlook to stable from negative.

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The company announced that it was confirming its A+ credit rating for Israel. According to Fitch economists, Israel has had an annual surplus on its external balance sheet every year since 2003, and that surplus is expected to remain in place for 2019-2020.

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Fitch economists estimate that renewed progress on reducing Israel's debt-to-GDP ratio or continued reduction to political and security dangers, will further improve Israel's credit rating.

However, the company warned, the credit rating could be affected if the public debt-GDP ratio continues to increase.

In August, financial services and credit rating agency Standard & Poor's reaffirmed Israel's global credit ratings and economic outlook, giving it an AA-score with a stable outlook.

S&P first upgraded Israel's rating to its current one – the highest rating awarded to the Jewish state to date – in August 2018, and reaffirmed it in February.

S&P noted it was not "overly concerned" by Israel's substantial fiscal deficit of 53 million shekels (roughly $15 million) – 3.8% of the gross domestic product, despite its exceeding the government's deficit goal of NIS 40 million ($11 million), or 2.9% of the GDP.

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