[lbo-talk] Amid Political Upheaval, Israeli Economy Stays Healthy

Yoshie Furuhashi critical.montages at gmail.com
Sun Dec 31 23:18:08 PST 2006


<http://www.nytimes.com/2006/12/31/world/middleeast/31israel.html> December 31, 2006 Amid Political Upheaval, Israeli Economy Stays Healthy By GREG MYRE

JERUSALEM, Dec. 26 — For Israel, it has been a typically tumultuous year: Ariel Sharon, then the prime minister, collapsed into a coma on Jan. 4, the radical Islamic group Hamas won Palestinian elections later that month, and Israel fought a monthlong war in Lebanon this summer.

But despite the political turmoil and spasms of violence, Israel, it seems, has figured out how to keep its economy charging forward.

It was the country's third straight year of strong growth, with the economy expanding nearly 5 percent. The stock market has been hitting record highs; unemployment is at a 10-year low. Israel's central bank is lowering interest rates to 4.5 percent on Jan. 1, putting them well below rates in the United States, an almost unprecedented development. The Israeli shekel is trading at 4.2 to the dollar, its strongest level in five years.

Further, Warren E. Buffett, the billionaire investor, paid $4 billion for an Israeli company, and Donald Trump is developing a 70-story luxury residential tower on the outskirts of Tel Aviv.

"Israelis look at the economy, and they've essentially been through these disturbances in the past, and they know the economy is pretty robust and it tends to come back," said Stanley Fischer, the governor of the Bank of Israel. "Things that happen here have a smaller impact on markets than I think they would abroad."

While the Israeli economy has been thriving, the Palestinian economy has moved in the opposite direction, contracting by an estimated 10 to 15 percent this year, according to the Palestine Monetary Authority.

For Israel, the business that best illustrates the economy's resilience this year is the company Mr. Buffett bought, Iscar Metalworking Company, a global leader in the manufacture of precision metal-cutting tools.

In May, Mr. Buffet bought 80 percent of the company, which has its headquarters on an isolated hilltop in northern Israel that offers a panoramic view of the nearby border with Lebanon.

Barely two months later, a cross-border raid by Hezbollah guerrillas ignited 34 days of fighting that pushed Israeli troops into Lebanon and drew heavy rocket barrages against northern Israel.

One rocket slammed into the Tefen Industrial Park, where Iscar is situated, causing minor damage to a building belonging to another company. Many more rockets crashed nearby during the weeks of war.

Many Iscar workers moved their families away from the border region, but the company maintained production, with only occasional slowdowns.

"It took us a brief time to adjust, but we didn't miss a single shipment," said Eitan Wertheimer, Iscar's chairman. "For our customers around the world, there was no war."

The northern city of Haifa came under almost daily rocket attacks, and ships stopped entering Haifa's port, the country's largest. Some exporters shipped their goods by air at much higher expense in order to meet deadlines.

The Tel Aviv Stock Exchange, which has been setting records throughout the year, seemingly shrugged off the war; it was slightly higher at the end of the conflict in August than before it started in July.

At the beginning of the year, Israel's economy was forecast to grow at around 5.5 percent, and will come in at about 4.8 percent, according to Mr. Fischer, who attributed the dip to the war.

The Palestinian economy, meanwhile, has been devastated. During the peace talks of the 1990s, the Israelis and Palestinians increased cooperation, and by 2000, both sides were growing rapidly and nearly 150,000 Palestinians entered Israel daily. Most were workers who accounted for a large slice of the Palestinian economy.

When the Palestinian uprising began in September of that year, both sides took an immediate economic hit, but for the Palestinians, the downward spiral has yet to end.

Israeli security forces greatly increased the web of restrictions in the Palestinian areas to prevent attacks, and the measures have also imposed great hardships on Palestinian economic life. The Palestinians grew increasingly dependent on aid as their access to Israel's economy dwindled. The problems worsened into crisis this year after Hamas came to power, and Israel began withholding Palestinian tax revenues and Western countries cut off direct aid to the Palestinian government.

The Palestinian per capita gross domestic product, which was about $1,800 annually at the beginning of the uprising, plummeted to $1,200 last year and continues to fall.

For Israelis, per capita gross domestic product has risen over the last six years from a little over $15,000 a year to around $18,000, according to government figures.

Israel turned the corner on a two-year recession in 2003, and for the past three years the economy has expanded at 4.4 percent to 5.2 percent annually, with a similar forecast for next year. The growth comes from technology, service and other modern industries, and trade mostly with the United States, Europe and East Asia.

Plagued by hyperinflation in the 1980s, Israel has an inflation rate hovering around zero percent this year, and it has been averaging less than 1 percent annually for the past five years.

The economic tide is not lifting every Israeli boat, however. Despite the economic growth, the number of Israelis living below the poverty level has been edging up, from 18 percent in 2002 to more than 20 percent last year, according to the government's National Insurance Institute.

Critics say this is because Israelis who are struggling economically have seen their benefits fall sharply, while they remain unemployed. The unemployment rate is at its lowest level in a decade, but still relatively high at 8.4 percent.

Benjamin Netanyahu, who as finance minister pushed aggressive open-market policies from 2003 to 2005, was also widely criticized for cutting social programs in a country where couples often have many children and depend heavily on such subsidies.

"The basic problem is that economic growth has been very uneven," said Shlomo Swirski, the academic director of Adva, a research institute that focuses on the poor.

Job growth, he said, has been concentrated in sectors that require a high level of education. Economic growth has been greatest in Tel Aviv and surrounding areas, the economic hub of the country, while the less developed Galilee in the north and Negev Desert in the south have seen much less progress, Mr. Swirski added.

"We're looking at growth that is highly concentrated geographically, economically and socially," he said.

Economists note that many of the poor come from two groups, Israeli Arabs and ultra-Orthodox Jews, that have large families and low participation rates in the work force. Among Israeli Arabs, few women have formal jobs. Among the ultra-Orthodox, many men do not work.

"We still see a strong debate over income distribution," said David Levhari, an economics professor at Hebrew University. "But overall, I think we're looking at an economy that should continue to do pretty well."

-- Yoshie <http://montages.blogspot.com/> <http://mrzine.org> <http://monthlyreview.org/>



More information about the lbo-talk mailing list