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Israel
ARMED FORCES AND SOCIETY
Economic Impact
The burden of maintaining a large, modern national security establishment
has always weighed heavily on the vulnerable Israeli economy.
The total defense budget for Israeli fiscal year (FY--see Glossary)
1988, including United States assistance of US$1.8 billion, amounted
to US$5.59 billion. Its principal components were local spending
on equipment, supplies, and construction worth US$2.05 billion,
personnel costs equivalent to US$1.25 billion, and purchases abroad
of US$1.87 billion.
The defense budgets for FY 1987 and FY 1986 totaled US$5.6 billion
and US$4.98 billion, respectively. The budget submission to the
Knesset indicated that the objective was to maintain overall local
costs--i.e., those items not supported by United States assistance--at
the same level in both FY 1987 and FY 1988. Several factors made
it difficult to compare the defense effort on a year-to-year basis.
For example, defense budgets were affected by the immediate costs
and later savings associated with cancellation of the Lavi fighter
aircraft project. The additional wages needed for the extended
call-up of reservists in 1988 to help contain the uprising in
the occupied territories also depleted resources available for
normal defense requirements.
As the largest single item in the government budget, defense
spending absorbed a major share of the budgetary cuts within the
Economic Stabilization Program of July 1985. The cumulative reductions
in domestic defense spending from FY 1983 through FY1986 were
estimated at US$2.5 billion, representing a 20 percent decrease
in total domestically financed military expenditures. The defense
burden as a ratio of GNP had averaged about 9 percent until 1966.
Real defense expenditures increased dramatically as a result of
the June 1967 War and the October 1973 War. They subsequently
remained steady at about 10 to 15 percent of GNP, excluding foreign
military purchases, and accounted for 20 to 25 percent of GNP
when foreign military purchases (almost entirely funded by the
United States) were included.
The Israeli government estimated the defense-related foreign
exchange burden at US$2.1 billion in FY 1985 and predicted that
it would remain at about that level during the foreseeable future.
This included self-financed military imports, indirect imports
(such as fuel and materials for the defense industry), and debt
servicing of defense-related loans. The Ministry of Finance estimated
that these expenditures contributed 53 percent of Israel's total
deficit in the balance of payments in 1985. According to the ministry,
the share of defense expenditures in the national budget, exclusive
of debt servicing, was 43 percent in FY 1984, falling to 39 percent
in FY 1985 and FY 1986 (see Provision of Defense Services , ch.
3).
According to an analysis by the United States Arms Control and
Disarmament Agency, Israel ranked among the five or six highest
countries in the world in terms of military expenditures as a
ratio of GNP. It ranked eighth in terms of military expenditures
per capita (US$875 in 1985) and second after Iraq in relative
size of the armed forces (47.9 uniformed personnel per 1,000 population).
Israel ranked about twenty-fifth in the world, below a number
of Arab and communist countries, in terms of military expenditures
as a ratio of total central government expenditures, based on
1985 defense budgets.
The economic burden of national security was perhaps most apparent
in terms of manpower, a vital resource in an industrialized nation
of only about 4.4 million people. The proportion of soldiers to
civilians at any given time was eight times higher than the world
average and historically had been far higher than in any other
country. This impact was magnified during mobilization of the
reserves, which has been increasingly frequent since 1973, when
the failure to mobilize promptly proved to be a costly mistake.
A full mobilization of the nation's nearly 500,000 reserves acted
as a sudden brake on virtually all economic activity. Even partial
mobilizations, which regularly occurred several times annually,
had a profound impact on national production, as did the yearly
periods of active duty served by each reservist. Such economic
disruption was a principal reason why Israeli strategists emphasized
that wars must be of brief duration (see Concepts of National
Security , this ch.).
Data as of December 1988
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