The Economic Stabilization Plan was implemented in

Israel Israel, officially the State of Israel, is a country in West Asia. It Borders of Israel, shares borders with Lebanon to the north, Syria to the north-east, Jordan to the east, Egypt to the south-west, and the Mediterranean Sea to the west. Isr ...

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 fought from 6 to 25 October 1973 between Israel and a coalition of Arab world, Arab states led by Egypt and S ...

were a lost decade economically, as growth stalled,

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

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 July 1st 1985 the government of

Shimon Peres Shimon Peres ( ; ; born Szymon Perski, ; 2 August 1923 – 28 September 2016) was an Israeli politician and statesman who served as the prime minister of Israel from 1984 to 1986 and from 1995 to 1996 and as the president of Israel from 2007 t ...

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 ...

". The plan was devised by Yitzhak Moda'i and

Michael Bruno Michael Bruno may refer to: * Michael Bruno (economist) (1932–1996), Israeli economist * Michael Bruno (entrepreneur), American entrepreneur * Kalani Das (born Michael Bruno), American percussionist, author and educator * 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 (polity), state. In the case of its broad associative definition, government normally consists of legislature, executive (government), execu ...

labor unions A trade union (British English) or labor union (American English), often simply referred to as a union, is an organization of workers whose purpose is to maintain or improve the conditions of their employment, such as attaining better wages ...

, 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, fully the New General Workers' Federation () and until 1994 the General Federation of Labour in the Land of Israel (, ''HaHistadrut HaKlalit shel HaOvdim B'Eretz Yisrael''), is Israel's national trade union center and represents the m ...

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 go ...

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 curre ...

of the

Shekel A shekel or sheqel (; , , plural , ) is an ancient Mesopotamian coin, usually of silver. A shekel was first a unit of weight—very roughly 11 grams (0.35 ozt)—and became currency in ancient Tyre, Carthage and Hasmonean Judea. Name The wo ...

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

Bank of Israel The Bank of Israel (, ) 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. The primary objective of the Bank of Israel is to ...

's ability to print money to cover

government deficit The government budget balance, also referred to as the general government balance, public budget balance, or public fiscal balance, is the difference between government revenues and spending. For a government that uses accrual accounting ( ...

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 in economic history 1985 in economic history 1985 in Israel Economic history of Israel Israel Economic Stabilization Plan

History

See also

References