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Israel
Index
The Economic Stabilization Program adopted in July 1985
involved the simultaneous implementation of several measures.
First, the exchange rate was devalued by 18.8 percent and was fixed
at the level of NIS1.50 equaled US$1.00. This rate was allowed to
fluctuate within a 2-percent band. Second, domestic prices were
allowed to rise by 17 percent and thereafter were frozen with a
stringent price control. Third, subsidies were reduced by US$750
million, as taxes were increased and a budget cut of US$750 million
was implemented. Fourth, the regular anticipated cost-of-living
adjustment was suspended. This resulted in a 20 to 30 percent
erosion in real wages. Under Histadrut pressure, the government was
forced to adjust wages to counter the effects of the devaluation.
By March 1986, real wages had recovered their losses. Finally,
monetary policy became extremely restrictive. Because the inflation
rate was reduced to 20 percent by the end of the year, the return
on unlinked shekel deposits became unprecedented. This situation
induced a shift of capital from linked dollar deposits to unlinked
shekel deposits. Although the government had conceived this program
as a short-term, emergency program, it was extended several times
because of its success. By the end of 1986, many of the price
controls were removed with no visible "repressed inflation"
appearing.
Many observers believe that this economic program was
successful because its two anchors were the exchange rate and wage
stability. The stability in these two prices, coupled with the new
notion that inflation would erode the government's real revenues,
forced the government to borrow more. The program's impact on the
rate of inflation, which peaked at 445 percent in FY 1984, was
little short of sensational. By the end of 1986, the inflation rate
had stabilized at 20 percent--the lowest rate since 1972.
Outside factors also helped the success of this stabilization
program. The program's introduction coincided with the acceleration
of the fall of the United States dollar on international markets.
Concurrently, the decline in oil prices lowered the cost of
increased imports spurred by increased Israeli export and capital
market earnings.
The success up to 1988 of the measures taken has encouraged the
government to consider additional reforms. In the fall of 1987,
discussion began regarding reforming the tax system, initiating a
privatization program, and streamlining the tariff structure.
* * *
Information on the Israeli economy is extensive. Basic data are
contained in the annual Statistical Abstract of Israel
published by the Central Bureau of Statistics and the Annual
Report published by the Bank of Israel. The Ministry of
Finance's annual Budget in Brief provides considerable data
and text on the budget. Additional data and text are included in
the Bank of Israel Economic Review (published quarterly) and
Bank of Israel Recent Economic Developments (published
irregularly), and in the Central Bureau of Statistics' Monthly
Bulletin of Statistics. An additional general source covering
a range of economic subjects is the monthly Israel
Economist.
The best up-to-date work on the Israeli economy and Israeli
developments from 1968 to 1978 is The Israeli Economy: Maturing
Through Crises, edited by Yoram Ben-Porath. The best coverage
of the period from 1948 to 1968 can be found in Nadav Halevi and
Ruth Klinov-Malul's The Economic Development of Israel.
Other, more specialized, books include: Israel: A Developing
Society, edited by A. Arian; Salomon J. Flink's Israel,
Chaos and Challenge: Politics vs. Economics; Fanny Ginor's
Socio-Economic Disparities in Israel; David Horowitz's
Enigma of Economic Growth: A Case Study of Israel; Michael
Michaely's Foreign Trade Regimes and Economic Development:
Israel; Howard Pack's Structural Change and Economic Policy
in Israel; Don Patinkin's The Israeli Economy; Ira
Sharkansky's What Makes Israel Tick: How Domestic Policy-Makers
Cope with Constraints; and Michael Wolffsohn's Israel,
Polity, Society, and Economy, 1882-1986.
The best report on economic developments in the occupied
territories is Raphael Meron's Economic Development in JudeaSamaria and the Gaza District: Economic Growth and Structural
Change, 1970-80. (For further information and complete
citations,
see
Bibliography.)
Data as of December 1988
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