Let Them Eat Dividends

Israel's economy is defying gravity and so are its food prices. Interest rates went down, did a U-turn and now are going up. Stock prices fell, then rose. The only thing unchanged is that the poor and the middle class are struggling more than ever as the price of food soars. What in the world is going on? Let's begin with the economy. The gloom-dripping economists, me included, are eating crow. We said Israel faced recession as the world economy slows. But Israel's economy grew at an annual rate of 5.4 percent in the first quarter of 2008. Business GDP grew even faster, by 6.1 percent. The unemployment rate dropped to 6.3 percent of the work force in the first quarter of 2008, a 13-year low. Israelis went on a spending binge, doubling their purchases of durable goods, mainly cars and refrigerators, as the slumping dollar made imports cheaper in shekels. Growth was powered by a 12.6 percent rise in exports, despite the 11-year low in the dollar-shekel exchange rate. Software and related service exports rose by a third, even though the weak dollar makes them very expensive in shekel terms. High-tech companies like Checkpoint, Alvarion and Nice, which sell to telecoms and related industries, report continued strong demand. There is even more good news. The New York-based global bank CLS, which specializes in foreign exchange, announced on May 26 that the Israeli shekel would join 16 other strong currencies and could now be freely bought and sold worldwide at its branches. CLS trades $4 trillion daily. Surely there must be a dark side to all this optimism. And there is - inflation. Consumer prices in Israel have risen by nearly 5 percent in the past 12 months and they rose 1.5 percent in April alone. This reflects higher energy prices, which makes it more expensive to transport food, and higher world food prices overall. A U.N. report called world food inflation "a quiet tsunami." In the past year, the price of oil has doubled, from $65 to today's $135/bbl. As a result, gasoline now costs NIS 6.58 a liter (about $8 a gallon). This is a major burden for low-income groups, who spend a far higher proportion of their income on gas and food than do the wealthy. Since 2000, the share of wages in total national income has fallen sharply in Israel, from two-thirds to only 62 percent. So working people are squeezed, earning relatively fewer shekels and with each shekel, buying less and less. The prices of rice and flour are especially worrisome. Worldwide, the price of rice has doubled, from $12 to $24 per 100 lb. sack, as supply failed to grow to meet rising demand. Wheat prices, too, have risen by 65 percent. The poor of the world, who live on bread or rice, face growing hunger. This has led to food riots in 30 countries, including Haiti and Egypt. At the end of April Sugat, which controls 70 percent of the rice sold in Israel, hiked its prices, and the supermarket chain Supersol in turn raised its rice prices by 33-65 percent. Sugar, oil and coffee have all risen dramatically, too. Even though Israel is not a poor country, rice is still a key staple for lower-income groups here. Hunger is now widespread in Israel. Food inflation has made it much worse. Organizations like Latet (which means "to give" in Hebrew) distribute rice to the poor. "But [because of high prices] we will have to stop buying and distributing it very soon," Eran Weintraub, Latet director, recently told the Jerusalem Post. "The poor are being hit in all directions. Those who barely kept their heads above water will now also become truly poor." Historians claim Marie Antoinette never said, "Let them eat cake," when told the poor had no bread. But philosopher Jean-Jacques Rousseau did say it, with irony, in 1776, to illustrate the huge gap between rich and poor. Today, I believe Israel's government is saying it, by its callous lack of action. It is not just in Haiti that the poor are being immiserated, but in Israel too. Why should not some of the fiscal dividends from Israel's booming economy be paid at once to those who cannot afford to feed their children? • The writer is academic director of TIM-Tel Aviv. • The Finance Ministry presented the government with a proposed 315.8 billion shekel ($92.6 billion) budget for 2009. The proposal includes an across-the-board cap of 1.7% on increased government spending. • The Consumer Price Index rose 0.7% in May, according to the Central Bureau of Statistics, marking the highest inflation level registered in the month of May in six years. Inflation over the past 12 months now stands at 5.4% - far above the government's targeted upper bound of 3% annual inflation. • Bank of Israel Governor Stanley Fischer has hinted that further hikes in interest rates may be imminent. In a speech before the Federal Reserve Bank of Boston, Fischer stated that "if inflation continues at the current rate, we will have to continue taking appropriate action." He also revised 2008 GDP growth expectations to about 4%, up from previous estimates of 3.2%. • Israeli construction firm Gelats is purchasing a 72,600 square meter solar energy park outside of Madrid for 32 million euros ($49 million), expanding the company's international solar energy business portfolio. • The Municipality of Tel Aviv-Jaffa has begun considering bids for the single largest plot of development property ever put up for sale in Israel - the 55,000 square meter parcel of land that formerly housed the Tel Aviv wholesale market. The plot has been granted building rights for a mixture of 1,800 residential apartments, commercial and public buildings, and a public park. It is estimated that the land may be worth as much as $1.2 billion.