Israel: Boomchik

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By ordinary economic rules, Israel ought to be in receivership. After more than a decade of living beyond its means, the country skidded into a deep recession in 1965 when Premier Levi Eshkol's anti-inflationary slowdown proved too abrupt. Unemployment jumped to 10%, and the government for the first time in its history was forced to put the jobless on the dole.

Then came the Six-Day War. It cost the nation of 2,669,000 people more than $1 billion, and Israel is still paying the price of victory. Since the war, the military budget has more than doubled, to $800 million — equal to 18% of the gross national product — partly because of the burden of defending conquered Arab lands. Just to administer the "new territories" costs $40 million a year. The bills are so big that Israel recently had to cut $100 million from public-works projects in order to meet the government's payrolls.

Yet, instead of going into bankruptcy, the Israelis are celebrating what they call a boomchik. Recently, in the midst of the Jews' annual Succoth harvest festival, Finance Minister Ze'ev Sharef officially hailed the end of the three-year economic downturn. "All signs show that we have finally overcome stagnation," he said. "There are no longer any real obstacles to our development."

Help from Rothschilds. The output of goods and services is running 14% ahead of last year's $4.1 billion pace, much better than the remarkable 10% annual growth that Israel recorded during the late 1950s and early '60s. Industrial production is up by about 30% from last year's $1.8 billion rate, and just about every other indicator is rising. Inflation, in the meantime, has been held to a manageable 2%.

There are several reasons for the recovery. For all its drawbacks, Eshkol's policy of restraint has forced Israel's powerful labor unions to hold the wage line. In the months between the June war and the end of 1967, worldwide sales of Israel bonds and United Jewish Appeal contributions pumped some $550 million into the economy. Though those sources are thinning out—they are expected to yield only $230 million for all of 1968—such overseas friends as the Rothschilds and Sir Isaac Wolfson, the British retailing magnate, are currently spurring a drive for new investment capital.

Thanks to De Gaulle. A prime factor in the resurgence has been the government's decision to build up defense industries in order to spend more of the military budget inside Israel's own borders. Says Moshe Kashti, Director General of the Defense Ministry and author of the plowshares-into-swords program: "We were buying planes in France and making shirts at home. It seemed logical to make the planes at home and buy the shirts in France."

That became a necessity when France and the U.S. temporarily cut off arms shipments at the outbreak of war. Israeli manufacturers responded to the pressure by setting up facilities to manufacture armaments. The country now manufactures 20% of its defense products and it plans to become totally self-sufficient within a decade. Local manufacturers wryly thank De Gaulle for his embargo, which has been only partially lifted.