Crittenden, Ann
June 1979
Foreign Affairs;Summer79, Vol. 57 Issue 5, p1005
This article discusses the deterioration of the Israeli economy and the increasing economic pressures on the coalition government of Prime Minister Menachem Begin despite the signing of the Egyptian-Israeli peace agreement, as of June 1979. A brief rundown of the current economic problems of Israel highlights the seriousness of the situation. Prices are rising faster than almost anywhere in the world, by almost 50 percent last year and by more this year. The balance-of-payments deficit in 1978 was $3.25 billion, equal to almost one-fourth of the gross national product of the country. The government budget last year was almost as large as the national output, in the previous year it was actually bigger, meaning that in both years funds from abroad were necessary to cover the commitments of the government. Not surprisingly, within two years after the Begin regime had taken office, public expenditures had increased, the number of public employees had grown and wages had risen faster than productivity or inflation. The peace agreement will worsen the economic plight of Israel in other ways as well. The redeployment of the defense line is expected to aggravate inflation, particularly in housing, as equipment and manpower in the construction industry are shifted to the Negev. The treaty will also mean the loss of the offshore Alma oil field in the Gulf of Suez. What alternatives are available to deal with these seemingly intractable problems? The most frequently discussed option focuses on cutting, not the military budget, but spending on social services and on inefficient enterprises, whether publicly or privately owned. In the end, however, it may well be that the only lasting solution to the economic dilemma of Israel and its only hope of becoming a substantially self-sustaining state, lies in an overall peace settlement.


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