Economy : Isreal

Poor in natural resources and big on defense expenses, Israel’s economy has always been a fragile equation of productivity, foreign support, government spending, and personal standard of living. The country’s main industries are chemicals, processed diamonds, high-tech products, textiles, and military equipment. Israel is also a world leader in desert agriculture. Recent history recorded extended periods of instability and inflation, including two currency’ changes, from lirot to shekelim to new sheke-lim (NIS), in attempts to control the devaluation of Israeli currency. The new shekel is worth one-tenth of an old one, and an old one was worth one-thousandth of a lira. The government’s support of the shekel at an artificially high value, an effort to lower inflation, collapsed in 1983. What foUowed was a series of devaluations in the shekel, reductions in government spending, and cutbacks in food subsidies.

Israelis rushed to buy stable American dollars, and it was even suggested that U.S. dollars be ised as legal tender. A new finance minister stopped government support of the shekel, and inflation consequently skyrocketed to more than 400%. Inflation hit a high of 243% in October 1984-an annual rate of 1260%. That same month the government implemented an austerity program. Unemployment jumped but inflation dropped to a monthly 3-7% in December as a result of a price, wage, tax, and profit freeze. When the program was diluted the following year inflation boomeranged back to 300%. Social discontent grew as the standard of living fell. Wages, prices, and currency exchange rates were frozen until October 1985, and later extended through July 1986. This time the inflation-reduction methods worked. Israel recorded its first surplus on its balance-of-payments current account in 1985.

This “economic miracle,” however, dissipated, and today, while inflation is still kept at around 10-15%, Israel is once again plagued by economic turmoil. The intifada, with its boycotts and strikes, has cut into Israel’s US$1 billion-a-year export market in the occupied territories, second only to the U.S. More importantly, the influx of over 450,000 new immigrants since 1989 has put a substantial burden on the national budget-the government is committed to an initial absorption package for each new immigrant, including basic housing and social benefits-and has also increased the unemployment rate; about 40% of these (often highly skilled) new immigrants are unemployed. One consistent bonus for the economy is US$3 billion in American aid each year. Recently, the U.S. approval of guarantees for $10 billion in loans promises another economical relief for the country.