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Israel’s Leading Fiscal Experts Discuss Economy in Washington

September 30, 1966
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David Horowitz, Governor of the Bank of Israel, warned here today that the contrast between overheated economies in developed nations and growing needs in underdeveloped countries required urgent steps to avert grave tensions and the peril of war. He spoke at the annual meeting here of the International Bank for Reconstruction and Development, the International Finance Corporation and the International Development Association. Another of the principal speakers, in Washington, was Israel’s Finance Minister Pinhas Sapir.

Mr. Horowitz suggested that developed nations were doing too little to meet the rising needs generated by the worldwide population explosion and increased demands. He cited a widening “good gap” among underdeveloped nations, and warned of “grave political implications” developing “if we are faced by falling off of trade, investment and rising famine.”

Asserting that there was a slowing down of economic aid to the underdeveloped nations at the same time that needs were increasing, he called for a “crash program” by the “affluent society” to apply domestic social solutions to “relations between the developed and underdeveloped world — a world welfare community.”

He advocated application of the “Horowitz Plan, ” which he first outlined to the United Nations Social and Economic Council in 1965. He summarized the plan as “a simple action of borrowing hard and lending soft, with the whole financial structure underpinned by a suitable set of guarantees and an interest-equalization fund.”


In his address, Mr. Sapir, who is a governor of the International Monetary Fund, said that Israel’s economic experiences promoted appreciation of IMF plans to assure international liquidity for the future. He stated that “In a certain sense, the Israel economy has been a rather extreme example of the difficulties encountered in a developing country where a large inflow of capital enables the economy to expand rapidly.”

Mr. Sapir pointed out that, “in Israel, during the last 10 years, we have had an average annual increase in population of 4 percent; our gross national product grew at an annual rate of 10 percent; and we were able to allocate about 25 percent of our total net available resources to investment. These percentages can be considered to be favorable ones, when compared with other countries. But, as is the case in almost all developing countries, we were able to achieve this growth only because of a large inflow of capital — in our case, mainly through unrequited transfers but to a certain extent also by obtaining long-term loans from international institutions, on the one hand, and attracting private investment on the other hand. In this way, the economy has become adjusted to having a large deficit on current account offset by a surplus in the capital account.”

“However, it is clear,” he continued, “that if we look to the future, the Israel economy — just as that of all other developing countries in the long run — will have to develop itself to a situation in which it will have not only to finance its development out of its own means, but also to return to the rest of the world principal, interest, and dividends on the capital flow which was instrumental in bringing about the development during the take-off period. This process, which can easily be explained in theory and can be outlined by every economist well-versed in national accounting, presents an extremely difficult task for those who are responsible, in a democratic state, for implementing the correct conclusions of our economists.”

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