Israel Economy

Front 1

Israel's Population from 1949-1953

Back 1

Grows from 700,000 to 1.3 million

Front 2

The Balance of Trade Crisis

Back 2

Israel couldn't get loans and was using up it's reserves. Ben Guriyon was asked to stop immigration. He refused and the dollar run out by 1953.

Front 3

Conquering Inflation

Back 3

Until 1953 money was being printed freely. From 1953 money stops being printed, government expenditure is cut, immigration is no longer encouraged, defense budget is cut.
Government provided work is also cut.

Front 4

The payment agreement

Back 4

In 1952 to resolve the foreign currency crisis, Ben Guriyon agrees to get payments from Germany for 12 years - until 1964

Front 5

Government intervention in the market in the 50s and 60s

Back 5

Government expenditure was only 25% and taxes were low. The government earned more than it expended gaining a surplus

To get equality - tax ladders were high, with the highest at 80%. This caused income to drop so the gains of the government were low

Indirect taxes were high even back then

The government nationalized the financial market. Most savings go to the government which distributes them - usually to agriculture or development towns

Front 6

Foreign Currency in the 50s and 60s

Back 6

Foreign currency can't be imported or exported. The government sets the exchange rate. There is constant demand for foreign currency so the government budgets it

Front 7

Import restrictions in the 50s and 60s

Back 7

High tariffs to prevent import except on raw materials while encouraging export

Front 8

Histadrut

Back 8

The only union in Israel. Owned most pensions. They united and employed working which caused a conflict of interests

Front 9

Welfare in the 50s and 60s

Back 9

Israel supplies jobs and services but there is no child benefits, unemployment benefit, old age or handicap benefits. National insurance started in 54 and was very slim

Front 10

Israel's budget in 1967-1973

Back 10

Public expenditure grows from 30% to 60%. Since the GDP grew as well this is actually 3 times as much

Front 11

The Black Panthers

Back 11

After negotiating with the black panthers, Golda Meir created the national insurance council which decided to raise benefits

Front 12

The French Embargo

Back 12

In the middle of the six day war, Charles De Gaul starts an embargo on Israel, who used to get its weapons from France. Israel starts expanding its military industry

Front 13

Bar Lev line

Back 13

1969 - Huge expenditures for contractors forming the Bar Lev line. The budget deficit rises to 10% of the GDP. Tax raises don't make up for it. Import also grows and there's an additional balance of payment deficit

Front 14

1973-1984 budget

Back 14

Government expenditure reaches 80% of the GDP when the growth drops to less than 3%

Front 15

1984 crises

Back 15

Inflation at 440%. Public debt reaches 80% of the GDP

Front 16

The energy crisis

Back 16

A new situation arrives of a combined inflation and recession. The growing price of raw materials drop the demand while the prices rise. In Israel the arms race keeps demand high so the recession isn't as bad. The growing raw material prices cause a balance of trade deficit when the price of imports rises and exports stay the same

Front 17

Labor party

Back 17

a combination of mapai, mapam and ahdut haavoda

Front 18

Likud

Back 18

a combination of the liberty and hirut party. Liberty wanted a free market. Hirut wanted a welfare state - supporting development towns. When the liberals wanted to cut welfare, hirut refused

Front 19

Simha Erlich

Back 19

The liberals minister of finance. Got a free hand from Begin. Had a plan in 77 to liberate the market after consulting Milton Friedman

Front 20

The Economic Revolution (המהפך הכלכלי)

Back 20

Before: the government sets the exchange rate. No movement of money. People are not allowed to hold dollars (Rabin fell when his wife turned out to be holding dollars)

After: All restrictions are removed. You can hold dollars, the exchange rate is dynamic, no government interference

Front 21

The Economic Revolution Failiure

Back 21

The liberalization should have come with fiscal contraction to prevent inflation

Front 22

The settlements

Back 22

From 67-73 Begin calls for settlements all over the west bank while Rabin and Golda Meir block them. In 77 Begin puts Sharon in charge of the settlements expanding them in the west bank and Jerusalem at huge expenses

Front 23

The 1985 balancing plan

Back 23

The exchange rate is frozen, prices are frozen for several months. There's a large reduction in salary - salary is raised much slower than the growth in productivity.

A law is passed against printing money. The inflation drops from 400% to 20% in a few months

Front 24

1985 market reforms

Back 24

Opening the market to exports.

Gradually opening the foreign currency market

Balancing prices

Strengthening the bank of Israel

Strengthening the ministry of finance.
Lowering government expenditure

Lowering the public debt

Stopping almost all subsidies, benefits and low credit to businesses

Building banks and other institutions to mediate finances instead of the government

Privatizing government companies - כמיקלים לישראל, אל-על, בזק

Front 25

Israeli imports

Back 25

In 1975 an agreement is signed with EU to lower tariffs gradually between 1975-1989

In 1985 as part of the balancing plan, tariffs on US import is removed

In 1991 Israel decides on a unilateral lowering of tariffs on countries without an agreement

Front 26

The Washington Consensus

Back 26

1. Price stability - unstable currency creates risk for international finances

2. Floating currency - When capital flows in you can either control the amount of money or the exchange rate. Not both

3. Independent national bank