The Economic Stabilization Plan was implemented in

Israel Israel (; he, יִשְׂרָאֵל, ; ar, إِسْرَائِيل, ), officially the State of Israel ( he, מְדִינַת יִשְׂרָאֵל, label=none, translit=Medīnat Yīsrāʾēl; ), is a country in Western Asia. It is situated ...

in 1985 in response to the dire domestic economic situation of the early 1980s.

History

The years after the 1973

Yom Kippur War The Yom Kippur War, also known as the Ramadan War, the October War, the 1973 Arab–Israeli War, or the Fourth Arab–Israeli War, was an armed conflict fought from October 6 to 25, 1973 between Israel and a coalition of Arab states led by Eg ...

were a lost decade economically, as growth stalled,

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...

soared and government expenditures rose significantly. Then, in 1983, Israel suffered what was known as the "bank stock crisis". By 1984 inflation was reaching an annual rate close to 450% and projected to reach over 1000% by the end of the following year. The economic crisis created feelings of anxiety, confusion, and lack of trust in the government among the Israeli citizens. See . In response, on 1 July 1985 the government of

Shimon Peres Shimon Peres (; he, שמעון פרס ; born Szymon Perski; 2 August 1923 – 28 September 2016) was an Israeli politician who served as the eighth prime minister of Israel from 1984 to 1986 and from 1995 to 1996 and as the ninth president of ...

implemented an economic stabilization plan aimed at generating "sharp

disinflation Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time. It is the opposite of reflation. If the inflation r ...

". The plan was devised by

Yitzhak Moda'i Yitzhak Moda'i ( he, יצחק מודעי, 17 January 1926 – 14 May 1998) was an Israeli politician who served five terms in the Knesset for Likud and then the New Liberal Party over the course of a 20-year career. Biography Yitzhak Madz ...

and Michael Bruno. 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. 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 (

the government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature A legislature is an deliberative ass ...

labor unions A trade union (labor union in American English), often simply referred to as a union, is an organization of workers intent on "maintaining or improving the conditions of their employment", ch. I such as attaining better wages and benefits ( ...

, and the central bank) that inflation was successfully brought to under 20% in less than two years. Some of its main points included: *A significant cut in government expenditures and deficit. *Reaching an agreement with the then-powerful

Histadrut Histadrut, or the General Organization of Workers in Israel, originally ( he, ההסתדרות הכללית של העובדים בארץ ישראל, ''HaHistadrut HaKlalit shel HaOvdim B'Eretz Yisrael''), is Israel's national trade union center ...

labor union to enact wage controls, thus decoupling rampant wage from price inflation. *Emergency measures imposing temporary

price controls Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of good ...

over a broad range of basic products and services. *A sharp

devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national cur ...

of the

Shekel Shekel or sheqel ( akk, 𒅆𒅗𒇻 ''šiqlu'' or ''siqlu,'' he, שקל, plural he, שקלים or shekels, Phoenician: ) is an ancient Mesopotamian coin, usually of silver. A shekel was first a unit of weight—very roughly —and became c ...

, followed by a policy of a long-term fixed foreign exchange rate. *Curbing the

Bank of Israel The Bank of Israel ( he, בנק ישראל, ar, بنك إسرائيل) is the central bank of Israel. The bank's headquarters is located in Kiryat HaMemshala in Jerusalem with a branch office in Tel Aviv. The current governor is Amir Yaron. T ...

's ability to print money to cover

government deficit The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending. A positive balance is called a ''g ...

s. These steps, coupled with the subsequent introduction of market-oriented structural reforms, including the privatization of many government-owned businesses, successfully reinvigorated the economy and paved the way for its rapid growth in the 1990s. The plan has since become a model for other countries facing similar economic crises.

References

{{Economy of Israel 1980s economic history 1985 in economics 1985 in Israel Economic history of Israel Israel Economic Stabilization Plan

History

See also

References