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Publisher\Editor Don Canaan

                       Feb. 23, 1996 V4, #34
All the News the Big Guys Missed

Israel's Economy Takes Top Gun

By Al Pessin (VOA-Jerusalem)

Israel's economy has been booming in recent years with high growth, low unemployment and falling inflation. And analysts credit much of the success to new opportunities provided by the peace process. The growth has come in spite of a large influx of immigrants from the former Soviet Union. But the Central Bank governor warns it will not last unless at least two problems are addressed by the government Israelis will elect in a few months.

Since 1989, Israel has absorbed more than 600,000 new immigrants, most of them from the former Soviet Union. That is the equivalent of a 12 per cent increase in population, and by people who did not speak the local language and many of whom did not have easily transferable job skills. In addition, the immigrants came at a time when the Israeli economy was already having its share of problems.

Yet, in spite of many difficulties, particularly in the early 1990s, with housing, education, job training and other services for the immigrants, Israel's Central Bank Governor Jacob Frenkel says the new arrivals are already helping fuel the engine of Israel's economic growth.

He notes that the country's gross domestic product rose by nearly 7 percent last year, with unemployment of only 6 percent and inflation down to 8.1 percent, from more than 14 percent the year before.

Frenkel credits government policies for much of the success. But he also says there was another, unforeseen, factor which helped Israel absorb the immigrants and grow economically at the same time. That was the peace process.

Israel still has minimal trade with Arab countries -- and economic relations with the Palestinians are tense and competitive. But Frenkel says the very existence of the peace process has opened new worlds for Israeli exports and attracted unprecedented waves of foreign investment for Israeli companies.

"If you look at the geographical distribution of our exports a decade ago and today, you just see a huge change -- much more dramatic than would be expected in the normal course of events. As a matter of fact, a very large fraction of the rise in Israeli exports in the last couple of years has been directed to markets that were closed to us for political reasons, not for economic reasons. And here I would mention China, India and the like." Israeli business growth last year was more than 8 percent, much of it fueled by exports, and since 1992 annual foreign investment in Israel has quadrupled to $2 billion.

Now, Frenkel says, the challenge is to keep things moving in the right direction. And to do that, he, like many central bankers around the world, recommends continuing the downward trend of inflation.

For this election year, against Frenkel's recommendation, the Israeli government set a target of maintaining inflation at last year's rate of about 8 percent. But for the future, he councils an aggressive strategy of lowering inflation five more percentage points by the end of the decade.

"The major strategy for the Israeli economy, looking down the road, and that's in a multi-year setting, must be a strategy that reduces inflation in Israel to levels commensurate with levels prevailing in the rest of the world, namely, around 3 percent.

Frenkel says that will help Israel address the other economic problem he sees looming -- a worsening trade deficit, brought on by the increased purchasing power of israeli consumers. Many Israeli business executives would like Frenkel to devalue the Israeli currency, the shekel, to make imports more expensive and exports cheaper. But he says such a move would be artificial and temporary, and would raise the cost of living.

.By contrast, he says, lowering inflation would help consumers and make Israeli companies more competitive in the long term so they can take even better advantage of the new opportunities the peace process is offering. That will be his advice to the new Israeli government, which voters are to choose in a few months.

Family of Dead Palestinian Donates Organs for Transplant in Israel

The family of a Palestinian laborer killed in a work accident in central Israel agreed to donate his organs for transplant in a rare instance which may open the way for Palestinian patients also to be candidates for transplants in Israel.
The clinical death of the 38-year-old laborer was established in the Sheba Tel Hashomer Hospital, which contacted his family and arranged for his older brother to come to Israel from Gaza and authorize the transplants. The man's heart went to a 49-year-old Israeli Arab man from Tira village, and his kidneys, liver and spleen to other patients waiting for transplants.

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