In between a press conference on immigration and a meeting with the families of Israelis being held hostage by Hamas in Gaza, Israeli Finance Minister Bezalel Smotrich found the time for an interview.
It’s clear Smotrich is troubled by Moody’s recent decision to downgrade Israel’s credit rating, and the ratings agency’s criticism of Israel’s leaders’ conduct during the war.
Q: Do you really think Moody’s is acting with anti-Israel motives?
A: I did not attribute political motives to Moody’s. My words should also not be taken out of context all the time. All I said is that the arguments that led them to downgrade the rating are geopolitical and political, and on this matter, Moody’s economists do not have a relative advantage. They are economists and understand economics, and I would concur with every word in the economic chapter of the report. In this chapter, they praise the strengths of the Israeli economy, the resilience it demonstrated during the war and the rapid recovery of the economy in the last three months, and they also praise our economic policy, including the consolidation steps in the 2024 budget. On top of that, Moody’s economists are misreading the geopolitical map in my view.
Q: How?
A: They do not believe that it is possible to defeat Hamas and thereby dramatically change the security situation for the better, and they think that the way to strengthen Israel’s security is through political arrangements, which is a euphemism for establishing a Palestinian state. On this, I think they are wrong. I still think there was no justification for downgrading the rating. We have had much worse periods of security instability that forced us to take economic risks from much weaker starting points—with a much smaller economy and a much higher debt-to-GDP ratio.
My message [on the Moody’s downgrade] was mainly for Israeli citizens, who are now in the middle of a war and received a moral slap in the face. I felt the need as a public leader to say: Friends, hold your head up high, stand tall, our economy is strong, with God’s help we are winning and victory will bring continued economic growth.
Q: And yet, how does it feel to be the first minister in this office during whose tenure the country’s credit rating was downgraded? Maybe different moves around the budget could have prevented this.
A: You can always do better. I don’t think we could have prevented the downgrade with economic steps, because the agency says the downgrade is in response to the lack of security stability, and that the Israeli government is not accepting international plans to stop the war. I do think we need to properly manage the economic challenge that the security challenge creates for us. I’m trying to do that right by being more generous on civilian matters, which I think is the right thing to do now, but all the while maintaining fiscal discipline.
Q: Let’s lay out the main criticism: Why hasn’t the government shut down wasteful ministries? Where are the budget cuts to yeshivot and the Haredim?
A: We cut what they call Coalition Funds. Out of 6 billion shekels (about $2 billion), we cut 2.5 billion. From the original yeshivot budget of 2.2 billion, we cut it to 1.7 billion. Priorities have shifted across the board. Now if we enter this discourse, the opposition will say “slash the Haredim’s budget” and the coalition will want to shut down the Kan public broadcaster. Is this the time to get into skirmishes that will expose all the divisions in Israeli society and take us back to Oct. 6 on steroids? I think the damage is not worth it.
I put on a table a state budget with 25 billion shekels ($6.8 billion) in consolidation—everyone will share the same burden. By the way, I must point out that I laid out a plan to shut down ministries and sent it to the prime minister. I don’t think there is much economic gain here but there was an expectation to do so and it would have been right symbolically. Prime Minister Benjamin Netanyahu is ultimately taking care of this issue as a coalition matter, and I can understand why he would seek stability—you need coalition stability to win the war.
Q: Two weeks ago, my colleague Ariel Kahana [said] that being finance minister was not what you had in mind upon joining the government but officials pressed you to take the job. Do you regret doing so, in retrospect?
A: I don’t regret it, because I think the finance ministry is one of the most important portfolios, with the greatest influence. I think I’m managing to do good things there. No other finance minister since the founding of the state has passed four budgets in a year. Right before the war, we passed two very conservative budgets deficit-wise, so we entered this war very well. I signed an eight-year agreement with the Histadrut labor federation, and signed wage agreements with nurses academic staff, and teachers—these are things that provide stability. We started dealing with the most important thing—the cost of living—right before the war. Economy Minister Nir Barkat and I were on the home stretch of the “What’s good for Europe is good for Israel” law. We set up a committee to examine market concentration in the food industry to provide legitimacy for breaking up conglomerates.
Q: In the future—and without massive tax hikes as planned—how will the public coffers be filled in light of the heavy war expenditures?
A: We have slashed 25 billion shekels in public expenditures, and ultimately it’s growth that will bring in revenues and lower the debt-to-GDP ratio. How do you bring growth? We’re going to inject billions into Israel’s venture capital industry. We allocated 400 million shekels ($109.4 million) to startups in the Israel Innovation Authority, and another 2 billion shekels ($547 million) to accelerate real estate—we’re going to provide apartments at a cost of no more than 800,000 shekels ($218,797) to eligible recipients in remote communities, with a total of about 10,000 apartments per year. This effort also integrates Haredim into the labor market and [aids] immigration absorption, which is going to be one of the biggest growth engines. Can we do more? Absolutely.
Q: But they [Haredim] don’t learn core subjects, so how will they enter the job market?
A: Here it comes with a major plan from the Education Minister, coordinated with me. They have to learn core subjects according to law, and the New Horizon plan is only for those schools that teach the core curriculum and have an academic education profile, including a massive deepening of supervision.
Smotrich is a member of the Security Cabinet, and in addition to his primary role in the finance ministry, he is also a minister in the defense ministry, but shortly after Oct. 7, the emergency government was formed alongside the War Cabinet from which Smotrich was pushed aside.
Q: The establishment of the War Cabinet limited your influence over the management of the war in key areas. For example, in sending a team to negotiate a prisoner exchange deal this week over your objections. Where do you have influence?
A: My exclusion from the War Cabinet is outrageous. It is an unfair demand by Minister Benny Gantz and goes against the very notion of unity. And the problem is not that it excludes me—it excludes tens of thousands of fighters on the battlefield who see me as their representative. They were excluded from decision-making. The fact that I agreed to this arrangement underscores how critical I see unity [as being] during wartime. However, I have a lot of influence. I speak with the prime minister every day and meet with him every other day, and the same goes for the defense minister and chief of staff.
It is probably also related to the fact that I am finance minister and they need me. What can you do, the army marches on its stomach, everything requires money, and I’m involved in many, many deliberations. For example, freezing funding to the Palestinian Authority. I started this process on my own and created a consensus around it, and the entire Cabinet backs the decision that not a shekel passes to Gaza. In the end, the Americans and Norwegians also fell in line with this. That influences much more than someone who wants to thumb their nose and win cheap points with their buddies and present themselves as more right-wing than everyone. He doesn’t influence—he shouts.
Q: Are you alluding to National Security Minister Itamar Ben Gvir?
A: I’m not alluding to anyone. The fact that the manner of distributing aid to Gaza is changing as we speak is also largely due to my work, after three months of my warning of the absurdity of having the aid being diverted to Hamas because it goes through UNRWA [the United Nations Relief and Works Agency]. The prime minister instructed the army and there is work being done. In my assessment, soon it will not be UNRWA. And then the humanitarian effort will not only serve the purpose of breathing room and American backing but will be part of the overall war effort, because you collect intelligence through distribution.
Q: Is it a matter of months until Hamas is destroyed?
A: The war is taking longer than we thought. The intelligence failure was not only the tactical failure of Oct. 7 …, for years before [that] we underestimated Hamas, and it turned out that there was a whole army here, with very sophisticated Iranian capabilities. Within that, the IDF is working exceptionally and there are operational, not political, constraints that dictate the pace, and here too, if I wanted applause and two more seats in the polls, I would shout “Faster, stronger.”
So this does not mean that I agree with every decision or approve every detail. In the main vectors, the war is progressing excellently and we are winning, contrary to all the doom and gloom in the [TV] studios. It will take no longer than a few months, not years, to destroy Hamas’s military and governmental capabilities.
Q: Including reaching every terrorist at the end?
A: We are in the first stage of denying them capabilities, and we need to deal with Hamas’s governmental infrastructure, that is deeply embedded in the population. Then the IDF will gain operational control over Gaza, and as in [2002’s] “Operation Defensive Shield,” it will continue to operate there. It may take another year or two to destroy the vast majority of capabilities. I’m telling you that the reality in the south is already a thousand times better than it was on Oct. 6, and Hamas’s level of capabilities has dropped significantly and this is deepening. So I think any “day after” discourse is a mistake. The IDF needs to be there for at least the next two years.
Q: And here you disagree with the defense minister, who wants there to be local civilian control?
A: That’s a pointless argument. No one wants IDF soldiers to unclog sewers in Gaza, we all want another entity to take responsibility for civilian life, but there is no such thing right now. Anyone who enters with Hamas’s [permission] is Hamas. That’s what the United States wants us to do with the Palestinian Authority, for example. And any entity that is not Hamas, Hamas will eliminate immediately. If you want a charade, then we will have one. Recently, the military mapped all entities in the area and they are all affiliated with Hamas.
Q: How is it possible to maneuver in the face of American pressure, when we know that our ammunition is running out?
A: This is perhaps one of the biggest challenges in this war. The military is managing the military-security challenge, and our challenge is to manage the diplomatic challenge. This is unprecedented. We have been waging war at high intensity, with enormous destruction, for 130 days, and we are doing so with international legitimacy. There are no decisions against us in the Security Council, no American arms restrictions. But there are prices to pay—Biden has to atone for supporting the war, so he issues an order against the settlements, and we will also deal with that. There have already been discussions with the prime minister and foreign minister, and we are launching a comprehensive tool kit for a relentless political struggle against the decrees.
Q: Will you work with banks to prevent the implementation of the orders against settlers?
A: I don’t want to go into details on this. We will not allow a situation in which an Israeli citizen with Israeli money in an Israeli bank wakes up one morning and has their money frozen because of an order from another country.
Q: You call Hamas a Nazi enemy, yet you sit in a government that brings in dozens of aid and fuel trucks every day to that same enemy. How does that work? Is there a mechanism that ensures it doesn’t reach Hamas?
A: No, there is no such mechanism. The fuel is a mistake and I opposed it in the Cabinet, but I take responsibility for it. And yet I can understand—there is enormous American pressure, which we have pushed back against. We have said no to stopping the war, no to stopping the maneuver in Rafah, no to reckless prisoner swap deals that would endanger Israel’s security, and many other things.
Q: The war in the north continues under the radar. Do you believe Hezbollah does not want war after recent events?
A: I won’t tell you Hezbollah doesn’t want war, because that’s the same containment concept that was used vis-à-vis Hamas [prior to Oct. 7]. I think the main lesson from Oct. 7 is that we need to prepare according to the enemy’s capabilities, not [their] intent. The last one to get into [Hamas chief in Gaza Yahya] Sinwar’s head and understand what’s going on there is the brain surgeon who operated on him here in Israel. My answer is simple: We are now paying the price for 20 years of containment and restraint. Let’s tell the truth: You can blame the prime minister, the defense ministry, and the IDF, but this is a social event of a society increasingly unwilling to pay prices. For years I yelled about the restraint in the north and south and wrote that we were mortgaging the future for artificial quiet in the present and that we would pay exorbitant interest rates—and now the due date has arrived.
It is impossible to solve problems that have been created over 20 years in one fell swoop. And here I say, with all due respect to Yisrael Beiteinu [Party] leader Avigdor Liberman, who sits in the opposition—it’s very easy to dispense advice from the sidelines. He also promised to eliminate Hezbollah and was Defense Minister, but didn’t do it and several other things. What is happening in the north cannot continue. We will need to militarily defeat Hezbollah. When? How? How much? Why? At a time convenient for us, and I do not want to elaborate because I am a Cabinet member.
Q: You managed to anger the Egyptians this week, a country whose peace is important to Israel. Maybe there are things a Cabinet member cannot say.
A: I said that with all due respect to Egypt, they should not preach morality to us, because they bear a heavy responsibility for the strengthening of Hamas and I suggest not to ignore the facts. I’m not the one saying this, the security establishment is saying this. And this is part of the reason why we cannot have our fate be determined by others.
At this point, Smotrich repeats a prevalent position on the issue of Jewish settlement in the Strip: “That is why I think there will be no choice but to resettle the Gaza Strip. Everyone agrees that the IDF needs to be there operationally for many, many years so that terror does not return, and what can you do, we will not be able to hold out there without settlements.
Q: There is already a first line of settlements there to protect
A: Why are Jenin and Tulkarm the terror capitals of the West Bank? Because four settlements were dismantled there is no army, and when there is no army there is terror. Over time if there is no settlement in the Strip, the IDF will not be there either.
Q: Given the many defense tasks, Israeli patience for the ultra-Orthodox not enlisting is dwindling, including among the public you represent. Can you lead this issue or maintain the alliance with the ultra-Orthodox?
A: There is no argument that we want everyone to enlist, and I come from a public that proves you can have both. I think we are at a critical crossroads, which is a tremendous opportunity for historic change in everything related to integrating ultra-Orthodox both in the IDF and in the job market, and I think there is maturity for this in the ultra-Orthodox public, that they understand this. But it cannot come by coercion. Some reservists who served in Bamahane [referring to Yesh Atid Party and opposition head Yair Lapid, who served in the military press office and Hebrew-language weekly magazine formerly published by the Israel Defense Forces] sit and preach morality to a prime minister who comes from a fighting family and two former chiefs of staff. For those who really want change – there is a tremendous opportunity here. We will need to make decisions and there will be a law, and this is a big challenge. I roll up my sleeves and charge at this challenge because it is important.
Q: When you see the polls showing your faction could fail to enter the Knesset, what can the explanation for that be?
A: I do not engage in politics. On the first day of the war, I decided that if the fighters sacrificed their lives in Gaza, then I would sacrifice everything needed here. I enter this room in fear and awe every morning, it is one of the most important rooms in the war, supporting the war effort economically on the front and home front until victory. I only engage in making the right decisions, and I do not ask myself about any decision whether it is popular or not. I believe that ultimately there will be a Zionist religious party, and that is what is important. If God and the public think I am the one who needs to voice this—great, and if they think they are better than me—that’s okay too.
Originally published by Israel Hayom.