Israel Takes Monetary Measures to Boost Economy and Create Jobs

In measures designed to stabilize the economy and create new jobs, the Israeli government this week devalued the shekel slightly and ordered a 1 percent decrease in the value-added tax.

A gradual four-year reduction in the tax on corporations was also announced by Finance Minister Avraham Shohat and Bank of Israel Governor Jacob Frenkel.

The value-added tax was cut from 18 to 17 percent.

The measures represent what economists believe to be a sounder response to growing unemployment than the large-scale public works programs urged even from inside the government.

The government is seeking to increase profitability of exporters by decreasing taxes and giving them more shekels for their dollars. This, in theory, should help create more jobs.

Devaluation was achieved by raising the “medium exchange rate” of the shekel vis-a-vis the basket of international currencies by 3 percent.

The basket is a measuring unit, determined by the Bank of Israel, that includes all major currencies. The “medium rate” is a fixed exchange rate that the central bank is authorized to fluctuate up or down by 5 percent. The medium rate rose Monday vis-a-vis the basket from 2.8632 to 2.9250.

This does not necessarily mean an immediate devaluation, since the exchange rate can go down 5 percent, as well as up. However, by Monday the shekel was already devalued by 0.5 percent.

All major economic sectors welcomed the new measures. The Histadrut labor federation promised to be flexible when the agreements on cost-of-living increases are renewed early next year. The business sector said the government was taking the high road toward combatting unemployment and securing economic stability.

But opposition politicians were critical. Likud Knesset member Dan Tichon described the measures as “too little and too late.”