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WEEKLY NEWSLETTER
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Israel
Index
The burden of maintaining a large, modern national security
establishment has always weighed heavily on the vulnerable Israeli
economy. The total defense budget for Israeli fiscal year
(FY--see Glossary)
1988, including United States assistance of US$1.8
billion, amounted to US$5.59 billion. Its principal components were
local spending on equipment, supplies, and construction worth
US$2.05 billion, personnel costs equivalent to US$1.25 billion, and
purchases abroad of US$1.87 billion.
The defense budgets for FY 1987 and FY 1986 totaled US$5.6
billion and US$4.98 billion, respectively. The budget submission to
the Knesset indicated that the objective was to maintain overall
local costs--i.e., those items not supported by United States
assistance--at the same level in both FY 1987 and FY 1988. Several
factors made it difficult to compare the defense effort on a
year-to-year basis. For example, defense budgets were affected by
the immediate costs and later savings associated with cancellation
of the Lavi fighter aircraft project. The additional wages needed
for the extended call-up of reservists in 1988 to help contain the
uprising in the occupied territories also depleted resources
available for normal defense requirements.
As the largest single item in the government budget, defense
spending absorbed a major share of the budgetary cuts within the
Economic Stabilization Program of July 1985. The cumulative
reductions in domestic defense spending from FY 1983 through FY1986
were estimated at US$2.5 billion, representing a 20 percent
decrease in total domestically financed military expenditures. The
defense burden as a ratio of GNP had averaged about 9 percent until
1966. Real defense expenditures increased dramatically as a result
of the June 1967 War and the October 1973 War. They subsequently
remained steady at about 10 to 15 percent of GNP, excluding foreign
military purchases, and accounted for 20 to 25 percent of GNP when
foreign military purchases (almost entirely funded by the United
States) were included.
The Israeli government estimated the defense-related foreign
exchange burden at US$2.1 billion in FY 1985 and predicted that it
would remain at about that level during the foreseeable future.
This included self-financed military imports, indirect imports
(such as fuel and materials for the defense industry), and debt
servicing of defense-related loans. The Ministry of Finance
estimated that these expenditures contributed 53 percent of
Israel's total deficit in the balance of payments in 1985.
According to the ministry, the share of defense expenditures in the
national budget, exclusive of debt servicing, was 43 percent in FY
1984, falling to 39 percent in FY 1985 and FY 1986
(see Provision of Defense Services
, ch. 3).
According to an analysis by the United States Arms Control and
Disarmament Agency, Israel ranked among the five or six highest
countries in the world in terms of military expenditures as a ratio
of GNP. It ranked eighth in terms of military expenditures per
capita (US$875 in 1985) and second after Iraq in relative size of
the armed forces (47.9 uniformed personnel per 1,000 population).
Israel ranked about twenty-fifth in the world, below a number of
Arab and communist countries, in terms of military expenditures as
a ratio of total central government expenditures, based on 1985
defense budgets.
The economic burden of national security was perhaps most
apparent in terms of manpower, a vital resource in an
industrialized nation of only about 4.4 million people. The
proportion of soldiers to civilians at any given time was eight
times higher than the world average and historically had been far
higher than in any other country. This impact was magnified during
mobilization of the reserves, which has been increasingly frequent
since 1973, when the failure to mobilize promptly proved to be a
costly mistake. A full mobilization of the nation's nearly 500,000
reserves acted as a sudden brake on virtually all economic
activity. Even partial mobilizations, which regularly occurred
several times annually, had a profound impact on national
production, as did the yearly periods of active duty served by each
reservist. Such economic disruption was a principal reason why
Israeli strategists emphasized that wars must be of brief duration
(see Concepts of National Security
, this ch.).
Data as of December 1988
Economic Impact
The burden of maintaining a large, modern national security
establishment has always weighed heavily on the vulnerable Israeli
economy. The total defense budget for Israeli fiscal year
(FY--see Glossary)
1988, including United States assistance of US$1.8
billion, amounted to US$5.59 billion. Its principal components were
local spending on equipment, supplies, and construction worth
US$2.05 billion, personnel costs equivalent to US$1.25 billion, and
purchases abroad of US$1.87 billion.
The defense budgets for FY 1987 and FY 1986 totaled US$5.6
billion and US$4.98 billion, respectively. The budget submission to
the Knesset indicated that the objective was to maintain overall
local costs--i.e., those items not supported by United States
assistance--at the same level in both FY 1987 and FY 1988. Several
factors made it difficult to compare the defense effort on a
year-to-year basis. For example, defense budgets were affected by
the immediate costs and later savings associated with cancellation
of the Lavi fighter aircraft project. The additional wages needed
for the extended call-up of reservists in 1988 to help contain the
uprising in the occupied territories also depleted resources
available for normal defense requirements.
As the largest single item in the government budget, defense
spending absorbed a major share of the budgetary cuts within the
Economic Stabilization Program of July 1985. The cumulative
reductions in domestic defense spending from FY 1983 through FY1986
were estimated at US$2.5 billion, representing a 20 percent
decrease in total domestically financed military expenditures. The
defense burden as a ratio of GNP had averaged about 9 percent until
1966. Real defense expenditures increased dramatically as a result
of the June 1967 War and the October 1973 War. They subsequently
remained steady at about 10 to 15 percent of GNP, excluding foreign
military purchases, and accounted for 20 to 25 percent of GNP when
foreign military purchases (almost entirely funded by the United
States) were included.
The Israeli government estimated the defense-related foreign
exchange burden at US$2.1 billion in FY 1985 and predicted that it
would remain at about that level during the foreseeable future.
This included self-financed military imports, indirect imports
(such as fuel and materials for the defense industry), and debt
servicing of defense-related loans. The Ministry of Finance
estimated that these expenditures contributed 53 percent of
Israel's total deficit in the balance of payments in 1985.
According to the ministry, the share of defense expenditures in the
national budget, exclusive of debt servicing, was 43 percent in FY
1984, falling to 39 percent in FY 1985 and FY 1986
(see Provision of Defense Services
, ch. 3).
According to an analysis by the United States Arms Control and
Disarmament Agency, Israel ranked among the five or six highest
countries in the world in terms of military expenditures as a ratio
of GNP. It ranked eighth in terms of military expenditures per
capita (US$875 in 1985) and second after Iraq in relative size of
the armed forces (47.9 uniformed personnel per 1,000 population).
Israel ranked about twenty-fifth in the world, below a number of
Arab and communist countries, in terms of military expenditures as
a ratio of total central government expenditures, based on 1985
defense budgets.
The economic burden of national security was perhaps most
apparent in terms of manpower, a vital resource in an
industrialized nation of only about 4.4 million people. The
proportion of soldiers to civilians at any given time was eight
times higher than the world average and historically had been far
higher than in any other country. This impact was magnified during
mobilization of the reserves, which has been increasingly frequent
since 1973, when the failure to mobilize promptly proved to be a
costly mistake. A full mobilization of the nation's nearly 500,000
reserves acted as a sudden brake on virtually all economic
activity. Even partial mobilizations, which regularly occurred
several times annually, had a profound impact on national
production, as did the yearly periods of active duty served by each
reservist. Such economic disruption was a principal reason why
Israeli strategists emphasized that wars must be of brief duration
(see Concepts of National Security
, this ch.).
Data as of December 1988
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