Shekel seesaws amid Knesset’s judicial selection drama

The shekel experienced some wild swings Wednesday as drama unfolded in Israel’s parliament over the election of lawmakers to the country’s judicial selection panel.

By evening the currency regained most of its losses from earlier in the day as investors digested the outcome of a key parliamentary vote, which saw an opposition lawmaker being elected to the committee and a coalition lawmaker lose out, averting an attempt by Prime Minister Benjamin Netanyahu to delay it to a later date.

The local currency was trading around 3.58 against the US dollar at 7:30 p.m. after depreciating more than 2 percent to 3.63 against the greenback earlier in the day amid investor concern that the government could be pushing off the vote on the selection of the judicial panel, seen central to ongoing efforts to reach a compromise on the coalition’s contentious plans to weaken the country’s judicial system.

At the close on Wednesday before the vote result, the Tel Aviv Stock Exchange’s benchmark TA-125 index fell 0.3% and the TA-35 index of blue chip companies slipped about 0.6%. The TA index of the five largest banks was down 1.1% and the TA-Finance declined 1.7%.

That came after Prime Minister Benjamin Netanyahu instructed the coalition to vote down both candidates for the panel — Likud MK Tally Gotliv from the coalition and Yesh Atid MK Karine Elharrar. This would have led to a second round of voting in 30 days and maintained uncertainty as to whether the opposition would get a representative on the committee as is tradition, or whether the coalition would try to grab greater power on the panel.

Despite the positive result for them, opposition leaders said Wednesday evening that the day’s events showed Netanyahu could not be trusted, and announced they would not continue negotiations over judicial reforms at the President’s Residence until the Judicial Selection Committee is formed.

“The panel vote represents a first test to try and build trust in the government’s declared efforts to find a compromise on the proposed judiciary remake,” Rafi Gozlan, chief economist at IBI investment house told The Times of Israel ahead of the vote result. “The possibility of an opposition lawmaker sitting on the judicial panel brought some confidence back to Israeli markets last week as it was seen as a sign that overhaul talks could be going into a more positive direction.”

“Today’s developments and the immediate reaction of the Israeli stock market convey concern and lack of trust in the government’s ability to reach a broader consensus on the judicial talks,” Gozlan said.

In a surprise turn of events, Elharrar was elected on Wednesday evening with 58 votes in favor and 56 against, meaning at least four coalition members broke ranks to vote for her. Likud’s Gotliv — who threw politics into a tailspin on Wednesday by refusing to stand down from the vote — was overwhelmingly rejected, with only 15 votes in favor and 59 against.

A second, separate election will be conducted within 30 days to choose the second lawmaker, likely Otzma Yehudit MK Yitzhak Kroizer.

The makeup of the nine-member judicial panel that will select judges is central to the coalition’s ongoing efforts to increase political control over the judiciary. A key bill in the overhaul plan — now frozen just before finalization — would reshape the committee and hand the government an automatic majority, giving it the power to determine most judicial appointments.

Proponents say this is needed to balance the system’s activist, liberal slant while critics warn the move will politicize courts and cause grievous harm to Israeli democracy.

In the run-up to the vote, the shekel last week strengthened more than 3% against the dollar amid investor optimism that the tradition of appointing a coalition and opposition representative to the Judicial Selection Committee would be upheld.

“The renewed uncertainty is pushing Israel’s risk premium up and we could see the shekel continuing to weaken in the near term, in particular if there are threats or signs that the legislation of the proposed judicial overhaul in its original format could be advanced,” said Gozlan.

Ahead of Wednesday’s vote, a forum of about 40 top business leaders called on Netanyahu to show “statesmanship” and ensure that the tradition of appointing both a coalition and an opposition representative to the judicial selection panel is continued.

“Israel’s economy is in great turmoil for many months,” read the letter by the business forum. “We, who have a broad overview of the Israeli economy as a whole, are experiencing this in all sectors and are concerned that a change in practice that has existed for years will lead to further and irreversible damage to investors’ confidence in the Israeli economy and Israel’s ability to emerge from the current crisis.”