On July 1, 1985, the government of Shimon Peres implemented an economic stabilization plan aimed at generating what was termed “sharp disinflation.” This was done after a series of smaller, so-called “package deals” that were negotiated with selected entities in the Israeli economy, proved ineffective in stemming the rise of inflation that had soared to 1,200% annually.
It was not until the implementation of this wider-scale stabilization plan, which brought together all the main players in the Israeli economy at the time, that inflation was successfully brought to under 20% in less than two years.
Prior to the stabilization, a customer buying a book at Steimatzky’s would not find the price marked on the inside cover. Rather, there would be a code number there that cross-referenced to a computer printout suspended from a string, which indicated the price of the book. That printout was updated twice a day, as often the value of the shekel dropped from the morning to the afternoon.
Salaried employees, for example, spent their entire month’s salary on the same day that the funds entered their bank accounts, because it was worth 3% less the following day. I doubt if any of us want to go back to those times.
Itamar Ben-Gvir was nine years old in 1985 and probably has no personal recollection of any of this.
Even after the economic stabilization plan was implemented, with the introduction of the new Israeli shekel and a short period of frozen prices and salaries, there was still insufficient foreign currency to permit us to have access to foreign currency at will. It was, for example, not possible to go to an ATM and withdraw foreign currency as it is today.
At the time I was working for Luz Industries Israel Ltd., building solar power stations in California. We needed to travel abroad regularly to meet with vendors and negotiate pricing and payment terms.
To travel abroad, and since Israeli credit cards were not accepted worldwide, we would go to the bank where the company had its accounts. With our tickets, passport(s) and a letter from the company in hand, the bank would provide a limited amount of foreign currency for use on the trip. I doubt that any of us would want to go back to those times either.
In 1987, Yariv Levin was 18 years old and probably has no memory of any of this.
Israel's currency in modern times
ISRAEL’S FOREIGN currency reserves today are just short of $200 b., as opposed to 1987 when they were just $9.5 b. While 1985’s economic reforms did dramatically reduce inflation and stabilize the economy, they could not do much to increase foreign currency reserves.
Those could only be increased through the growth of Israel’s exports and increasing foreign direct investment into Israel. It was the implementation of an aggressive foreign direct investment attraction program by the government’s Center for Business Promotion that jump-started the growth of inward investment.
The growth of the hi-tech industry over these last 30+ years has been a key driver in increasing foreign currency reserves, which made it possible for Israel to develop as a modern, first-class society. The decision last week by the Israeli Fintech firm Riskified to move $500 m. out of Israel, and encourage some of its employees to relocate to their expanded operation in Lisbon, is thus a red flag to everyone who worries about foreign currency reserves and their effect on the economy.
While $500 m. is just 0.25% of our total foreign currency reserves, the trend is worrisome. If this continues, the overall economy will be under threat, as will the resultant lifestyle we have all been privileged to enjoy.
MK Simcha Rothman, head of the Constitution, Law and Justice Committee, was just seven years old in 1987 and has been the recipient of the good life in Israel, with no memory of the difficult times.
So, what scares the general population even as much or more so than the effort to give total control over everything to the Knesset and the prime minister? It is the potential for taking us back to a time when the economy itself was so much smaller than it is today that none of us will be able to live the kind of lives that all of us worked so hard to create.
Remember that in 1987, Israel’s population was 4.4 million, less than half of what it is today. At the time, the country could barely sustain itself. Should the current judicial reforms get passed “as is” and companies continue to take themselves and their funds out of Israel, everyone will be affected, including those who are pushing hardest for the passage of these reforms in their present format.
Specifically…
There will be less money available for public education, both in the government educational system and the haredi school system.
There will be a shortage of funds to properly maintain Israel’s infrastructure (roads, bridges, power stations, water carriers, etc.)
Unemployment will soar as more and more companies will either close down or move abroad.
The capabilities of the social services sector will be dramatically reduced.
We will see an outflow of hi-tech talent who will follow the money and go where the jobs are.
The defense budget, so critical to our long-term survival here, will be reduced as well.
MOST PEOPLE here admit that some judicial reform is absolutely necessary. But it is important to balance that with the concomitant need to keep the economy stable and eliminate the fear that the country will become something less than the democracy it is today.
On the ninth of the Hebrew month of Av in 1492, the following lines were written on parchment by a Jew who converted in order to escape the wrath of the Inquisition:
“I, Moshe Ben Avraham [Moses, the son of Abraham], forced to break all ties with my people and my faith, leave these lines to the children of my children and theirs, in order that on the day when Israel will be able to walk again, its head held high under the sun without fear and without remorse, they will know where their roots lie.”
Today, here, in Israel, we walk with our heads held high under the sun without fear and without remorse. We dare not put that at risk for any reason whatsoever.
The writer, who has lived in Jerusalem for 39 years, is CEO of Atid EDI Ltd., a Jerusalem-based international business development consultancy that, among other activities, worked with Israel’s Center for Business Promotion for 20 years to encourage investment in Israel. He is also a former national president of the Association of Americans & Canadians in Israel, and a member of the Board of Directors of the Israel-America Chamber of Commerce.