Israel and the Arabs: Israel's Economic Plight

Login or Register to leave a comment.

Sign-up for free weekly updates from ForeignAffairs.com.

With the signing of the Egyptian-Israeli agreement, the focus in the troubled Middle East has turned to the West Bank, and negotiation of a wider peace settlement. What is rarely discussed in the context of these critical talks is the deterioration of the Israeli economy and the increasing economic pressures on the coalition government of Prime Minister Menachem Begin. Plagued with the greatest military burden per capita of any country in the world, pushed by its Zionist mission to perpetuate an inefficient state presence in the economy, and dependent upon American assistance for its basic needs, Israel is entering into the most difficult economic phase in its history.

A brief rundown of Israel's current economic problems 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 country's gross national product. 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 government's commitments.

Hyperinflation in particular has seriously undermined the stability of the coalition Likud government. Public opinion polls in Israel, as in the United States, suggest that the issue of inflation is of greater importance to voters than any foreign policy issue, and surveys taken this past spring indicated that if elections had been held at that time, the Center-Right coalition would have been defeated by the Labor Party opposition for purely domestic policy reasons.