Report Predicts Dire Consequences if Israel Does Not Get Loan Money

A 150-page report on Israel’s economic outlook, due to be sent to Bush administration officials in Washington this week, predicts an unprecedented unemployment rate of 16.2 percent by 1996 if Israel does not receive U.S. guarantees for $10 billion in desperately needed loans.

The dearth of investment capital would result in 360,000 jobless Israelis four years from now, when the number of immigrants, mainly from the former Soviet Union, reaches 1 million, the report says.

The report, analyzed extensively by the Israeli daily Ma’ariv, was prepared by Ya’akov Lifshitz, former director general of the Finance Ministry, at the request of Finance Minister Yitzhak Moda’i.

Its appearance in Washington will coincide roughly with the end of the 120-day waiting period during which Congress was asked to forgo consideration of Israel’s request for the loan guarantees.

Without the infusion of capital through the guaranteed loans, the economy would likely achieve an annual growth rate of only 5.8 percent, and the per capita standard of living would drop one half of 1 percent, a year, the report says.

The government would be forced to raise taxes. But an even bigger concern is that immigrants with technological potential would leave the country, and the emigration of young adults born in Israel would also increase.

The bright side of the report is its optimism about Israel’s ability to repay the guaranteed loans. It stresses that Israel has met all of the commitments it took upon itself in the past.

S26.5 BILLION NEEDED

The document predicts an economic upturn in the second half of the 1990s, with exports rising at an average annual rate of 11.5 percent until the end of the decade.

Lifshitz’s report, however, deals primarily with what will happen to the economy from 1992-96.

Its assumption is that 200,000 immigrants will arrive in each of the next three years. In 1995, the number of immigrants will drop to 70,000, and in the following year will return to the level that existed prior to the massive immigration wave.

Israel will need the enormous sum of $26.5 billion for the absorption of 1 million immigrants, more than double the amount it is asking the U.S. administration to guarantee over the next five years.

Israel’s balance of payments deficit would grow in that period to an unprecedented $42 billion.

Ma’ariv observed that the report, though dealing with a state economy, is basically equivalent to the forecast of any company that wants to attract capital.

At the moment, the focus on the guarantees is mainly political, Ma’ariv said. But the government understands that even if it overcomes the political obstacles, $10 billion are not just given away. It is impossible to request such an amount without the ability to repay being appropriately presented.

The report therefore is a comprehensive work, not just an ad hoc effort.

The document is intended to explain to U.S. decision-makers why Israel needs this money and how it can use it as momentum for growth. It also seeks to convince the guarantor that Israel is a good risk.

Ma’ariv said that if there are no surprising revelations in Lifshitz’s report, it stands as a professional forecast for the Israeli economy.