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Israel
BALANCE OF PAYMENTS
Israel has had a balance of payments deficit throughout its existence,
primarily because of its heavy defense burden and the costs associated
with immigration. This deficit has been covered by capital transfers
in the form of loans and, in recent years, grants. These grants
historically have come from Diaspora Jewry. Since 1974 the United
States government has become by far the most important source
of financial support, at first in the form of loans, but since
1979 in the form of grants.
The balance of payments position fluctuated widely, following
major shifts in economic policy. Between 1980 and 1983, the civilian
portion of the import deficit rose rapidly, with a mounting increase
in the foreign debt. In 1984 and 1985, these trends reversed themselves
as increased United States grants halted the rise in foreign debt
and capital exports.
At the end of 1986, Israel's net foreign debt totaled about US$19
billion. The size of this debt was less of a burden than it would
appear, however, because US$10 billion of it was owed to the United
States government and had a long repayment period. A further US$5.5
billion was owed primarily to Diaspora Jewry (see table 11, Appendix
A).
In August 1986, the Israeli exchange rate was pegged to a fivecountry
currency basket. The exchange rate remained fixed until January
1987. This policy, combined with a US$750 million United States
emergency grant-in-aid and a reduction in oil prices, led to increased
stabilization of Israel's inflation. In the first quarter of 1988,
the dollar-NIS exchange rate stood at NIS1.60=US$1.00.
Data as of December 1988
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