Finance:1985 Israel Economic Stabilization Plan

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Short description: Neoliberal reforms under the Peres premiership

The Economic Stabilization Plan was implemented in Israel in 1985 in response to the dire domestic economic situation of the early 1980s.

History

The years after the 1973 Yom Kippur War were a lost decade economically, as growth stalled, inflation 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.[1] See Economy of Israel § History.

  • A significant cut in government expenditures and deficit.
  • Reaching an agreement with the then-powerful Histadrut labor union to enact wage controls, thus decoupling rampant wage from price inflation.
  • Emergency measures imposing temporary price controls over a broad range of basic products and services.
  • A sharp devaluation of the Shekel, followed by a policy of a long-term fixed foreign exchange rate.
  • Curbing the Bank of Israel's ability to print money to cover government deficits.

These steps, coupled with the subsequent introduction of market-oriented structural reforms,[2] including the privatization of many government-owned businesses,[3] 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.[4]

See also

  • Economy of Israel
  • Banking in Israel

References

  1. ↑ Rosen, Ido (2022). "Billion dollar madness: examining the paradox of financial satire through the 1980s economic crisis in Israeli comedy films". Journal of Israeli History: 1–21. doi:10.1080/13531042.2022.2136563. 
  2. ↑ Israel's Economy: 1986-2008, Rafi Melnick and Yosef Mealem
  3. ↑ Peretz, Sami (18 April 2018). "70 years on: Thoughts on Israel's imperfect capitalism - Business - Haaretz.com". Https. https://www.haaretz.com/israel-news/business/70-years-on-thoughts-on-israel-s-imperfect-capitalism-1.6011475. Retrieved August 1, 2019. 
  4. ↑ Fischer, Stanley (1987). "Stopping High Inflation: The Israeli Stabilization Program, 1985–86". American Economic Review 77 (2): 275–278. 



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