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Israel
The Economy
SINCE THE FOUNDING of Israel in 1948, the Israeli economy has
experienced two distinct periods: one spanning the years 1948
through 1972, and another stretching from 1973 to 1988. The three
prominent features of the Israeli economy during the first period
were the ingathering of the exiles (resulting in a very high rate
of population growth), considerable importing of capital, and
rapid growth of total and per capita gross national product (GNP--see
Glossary). During this period, the Israeli economy grew at a very
rapid rate, averaging an annual GNP increase of 10.4 percent annually.
Between 1973 and 1986, by contrast, GNP growth declined to about
2 percent per annum, with no increase in per capita output. At
the same time, the rate of inflation--which from 1948 through
1972 was in single digits--increased to a high of 445 percent
in 1984. In 1975, 1983, and 1984, the Israeli economy came close
to exhausting its potential sources of short-term financing to
cover its balance of payments deficits.
In July 1985, the government instituted an emergency program
to interrupt the hyperinflation that was threatening the survival
of the economy. By the end of 1985, the rate of inflation had
been reduced to 20 percent. Even more remarkable was the elimination
of the government's budget deficit in fiscal year (FY--see Glossary)
1985. At the beginning of FY 1986, the budget deficit remained
close to zero. The emergency program ended fourteen years of steadily
worsening inflation and devaluations, and reversed years of government
overspending. The relative stability the program achieved was
seen as the necessary precondition to an assault on the underlying
structural shortcomings responsible for the slow growth of the
economy since 1973.
Data as of December 1988
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