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Israeli Economy in a Tailspin, with All Indicators Pointing Down


Israeli motorists got a chance this week to join the rest of the industrialized world and drive on a multi-lane toll road.

The four-lane “Trans-Israel” highway, which bypasses the jammed freeways near Tel Aviv, opened a few months ago on a free, trial basis.

But on its first day of operation as a toll road — about $2.50 to travel some 20 miles — the road was virtually empty.

It may be that Israelis will need time to get used to paying for what was previously free. Or it may well be another indication of the hard economic times plaguing the country.

Put simply, 2002 was a terrible year for the Israeli economy.

Thousands were laid off, and unemployment reached a record high of 10.5 percent.

During the past two years, 81,000 people fell below the poverty line. About 1.3 million Israelis — nearly one in five — are now poor. The poverty level for an Israeli family of four is $934 per month.

According to preliminary figures released Tuesday by the Central Bureau of Statistics, Israel’s economy in 2002 had its worst performance since 1953.

The economy shrank by 1 percent this year, according to the bureau. Moreover, it was the second year in a row that the adjusted gross domestic product fell, a first in the nation’s history, according to the Israeli daily Ha’aretz.

Nor are there signs of improvement on the horizon: An official at the bureau predicted that if current trends continue, the economy will fall by as much as 0.5 percent next year.

Helping to create the economic downturn, private consumption declined by 0.6 percent this year, according to the bureau, which said it was the first such decrease since 1980.

The climate among producers was equally bleak: Some 60 factories and 150 start-up companies shut down during the past year. Another round of closings will take place next year, according to the Manufacturers Association.

Along with the thousands of businesses that closed, the salaries of wage earners declined.

The tourism business was equally bleak. The number of hotel stays dropped by 34 percent from 2001, and hoteliers reported a decrease in income of 75 percent.

There is more bad economic news in store for Israelis in the coming year.

Gasoline prices are expected to rise, as are the prices of food and manufactured goods such as electrical appliances.

Moreover, according to new tax provisions, interest and dividends will be subject to taxation for the first time in Israel’s history.

It’s no surprise that many Israelis are thinking twice before opening their wallets.

Adding to the gloom, the governor of the Bank of Israel, David Klein, said in an interview with the Ma’ariv newspaper last week that given the present economic climate, it would not be surprising if a major Israeli bank collapsed.

Klein’s comments caused the shekel to drop 1 percent against the dollar in weekend options trading.

On Monday, Prime Minister Ariel Sharon reprimanded Klein for his pessimistic comments.

Without doubt, some of the decline in the economy can be attributed to a wider slowdown affecting the global economy. Israel, which was a leader in global high-tech, was especially hard hit when the dot-com bubble burst.

But the main factor is the two-year-old conflict with the Palestinians, which has kept tourists and investors away.

Economic analysts agree that only an end to the fighting will allow for renewed economic growth.

Meanwhile, analysts are warning that if the economic situation continues this way, the country’s social stability could be at stake.

Less than a month before general elections, however, there is no comprehensive plan to rescue the Israeli economy.

For their part, Israeli news organizations are not dealing with the issue. They are preoccupied with the election campaign and the near-daily casualties from the fighting with the Palestinians.

For now, one can merely point out the large question marks that will affect the economy:

The war climate: Will there be a clear outcome soon to the U.S. campaign against Iraq and Israel’s war against Palestinian terrorism?

Israel’s budget: Will the next finance minister push for massive investments in infrastructure as part of efforts to renew economic growth, or will cutbacks remain the policy, out of fear of even worse times to come?

World economy: Will the global economy recover, allowing Israel to regain some of the high-tech strength it lost during the past three years?

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