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`Who Needs
$10 Billion?'
INA FRIEDMAN ISRAEL CORRESPONDENT
A
year and a half ago,
Yitzhak Shamir's gov-
ernment went to the wall
(and took AIPAC with it)
over the receipt of $10 billion
worth of loan guarantees from
the American government for
the purpose of immigrant ab-
sorption.
Ultimately it was Yitzhak
Rabin who secured that "hu-
manitarian aid" from the Bush
Administration during his
first month in office.
Now, much to everyone's cha-
grin, it appears that Prime Min-
ister Rabin's government is not
quite sure what to do with the
money. That, at least, is the pic-
ture that's emerged from the
early deliberations of Israel's
1994 budget and at a concomi-
tant seminar of top-drawer econ-
omists who addressed
themselves to the question:
"Who needs $10 billion?"
The conclusion of the experts
is that the absolutely un-
imaginable has happened: the
Israeli economy does not need
the infusion of capital that, just
two years ago, seemed essential.
The reason for this turnabout
is a mixture of good news and
bad. The bad news is that there
has been a sharp drop in immi-
gration from the former Soviet
Union — the reason the guar-
antees were requested in the
first place — from a predicted
200,000 people a year, for a span
of five years, to 70,000 in 1992,
with no upturn in sight.
The good news is a collection
of signs that the Israeli econo-
my has taken an upswing. First
there's been a surprise im-
provement (by about $1 billion)
in the balance-of-payments
deficit, with exports expected to
continue rising by 9 percent per
year.
There's also been a 20 percent
rise in investments alongside a
drop in unemployment, from a
menacing 11.2 percent at the
start of 1993 to 10.6 percent at
mid-year (with the forecast that
the decline will continue to 10.2
percent by the end of 1993 and
8-8.5 percent by 1996).
Equally encouraging is the
fact that 123,000 of the 164,000
immigrants who were in the la-
bor market at the end of 1992
are currently employed, 70 per-
cent of them in the private sec-
tor.
Finally, due to a radical drop
in inflation — from the 18 per-
cent assumed and planned for
in 1990 to 9.4 percent in 1992 —
the Israeli government ended
last year with 8.8 billion shekels
left over from the 1992 budget.
This has, in turn, has had a
positive effect on the local deficit
(as opposed to the external debt),
lowering it to 10.3 billion shekels
(instead of the 12.8 billion an-
ticipated and planned for).
The bottom line of all these
figures is an unusual embar-
rassment of riches that has
sparked a debate on whether
and how to exploit the loan guar-
antees. It's also brought to light
some intriguing points about
their acquisition.
At the parley of economists
last week, for example, Profes-
sor Michael Bruno, the former
governor of the Bank of Israel,
revealed that rather than be the
result of painstaking calculation
and analysis, the figure of $10
billion was "born in the air" —
literally so, while former Fi-
nance Minister Yitzhak Moda'i
was on a flight from Israel to the
United States to request a boost
in monetary aid.
Prime Minister Rabin added
a further insight into the issue
Getting the loan
guarantees became
a political
necessity — if not
an economic one.
by noting that before departing
for the U.S. during his first days
in office, he concluded that "the
guarantees had become a test of
U.S.-Israeli relations in the
American mind — and that of
the world. Deciding to forgo
them after [Israel] had earlier
been turned down would have
been interpreted as a decline in
Israel's status."
Thus for the Rabin govern-
ment, like its predecessor, ob-
taining the guarantees was as
much a matter of political pres-
tige as economic necessity. How-
ever, the government now finds
itself in something of a Catch-22
situation whereby it doesn't im-
mediately need the guarantees
but can't afford — for the same
reasons of prestige and credibil-
ity — to relinquish them.
"You pushed many senators
and congressmen against the
wall over those guarantees,"
M.I.T. economics Professor Stan-
ley Fischer reminded his Israeli
colleagues.
"Now you can't say to them:
Thanks for standing up for us
/