Israel - Economic analysis of government's policies, investment climate and political risk.






ISRAEL: Economic Policy Analysis

This site presents an analysis of the Israeli government's economic policies compared to a revised list of 34 economic policies as prepared by student Edward Epstein with the McKeever Institute of Economic Policy Analysis (MIEPA) in May of 2003. To read the analysis scroll through this site. To learn more about the background policies, click here Introduction and Policy Recommendations

To learn more about MIEPA, click here Return to MIEPA's Home Page

Edward Epstein, an Israeli citizen who currently [May 2003] lives in California, has completed a study of the home country government's economic policies as compared to the MIEPA list of policies as outlined above. The study on Israel is shown below. The ratings herein are based on the following rating scale:


5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 1996. Used herein with permission]

To read a disclaimer about the analysis in this file, scroll to the bottom of the file.

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Comparison of Israel's economic policies to MIEPA criteria as prepared by native student of Israel, Edward Epstein, studying in the US in May of 2003.



        1               4.5          13.5             15.0        90%

        2               4.5          13.5             15.0        90

        3               3.0           9.0             15.0        60

        4               4.5          13.5             15.0        90

        5               5.0          15.0             15.0       100

        6               5.0          15.0             15.0       100

        7               4.0          12.0             15.0        80

        8               4.5          13.5             15.0        90

        9               4.5          13.5             15.0        90

        10              4.0          12.0             15.0        80

        11              1.5           4.5             15.0        30

        12              5.0          10.0             10.0       100

        13              1.0           2.0             10.0        20

        14              3.0           6.0             10.0        60

        15              5.0          10.0             10.0       100

        16              2.5           5.0             10.0        50

        17              4.0           8.0             10.0        80

        18              4.5           9.0             10.0        90

        19              3.5           7.0             10.0        70

        20              1.5           3.0             10.0        30

        21              3.5           7.0             10.0        70

        22              5.0          10.0             10.0       100

        23              5.0          10.0             10.0       100

        24              3.0           6.0             10.0        60

        25              1.0           2.0             10.0        20

        26              5.0          10.0             10.0       100

        27              3.5           7.0             10.0        70

        28              4.5           9.0             10.0        90

        29              3.0           3.0              5.0        60 

        30              4.3           4.3              5.0        86

        31              5.0           5.0              5.0       100

        32              4.5           4.5              5.0        90

        33              2.0           2.0              5.0        40

        34              2.0           2.0              5.0        40

   TOTAL             126.3          276.8            375.0        73.8%
                      =====        ======            =====        =====

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1. Freedom from internal control: 4.5

The Israeli constitution states that every one in the country has equal rights regardless of race, skin, color or origin. Israelis are proud of their freedom. Inhabitants of Israel can move freely around the country without any limitation except military territories. There is a freedom of speech, political opinion, and religion as well. Although Israel is a highly religious country and its inner laws comply with traditions based on Judaism, any citizen of Israel is free to attend religious services in mosques and churches as well as synagogues. Yet military service is mandatory for citizens of Israel. The period that people spend in the army is the only time when they are subjected to the law of the Israeli Defense Forces. The rest of the time any one in the state is free to leave the country, come back and fully participate in any activities in Israel.

Sources: Personal knowledge 05/03/03

2. Freedom of speech: 4.5

Israel is a free, westernized country, which recognizes the individual rights of its citizens (such as their right to liberty and freedom of speech). As citizens of the democratic country Israelis are proud of their freedom of expressing any opinion that includes freedom of publishing, freedom of broadcasting and freedom of speech. Without freedom of speech democracy cannot thrive. If an individual or a group cannot freely express himself or herself, when the right of protest is denied, if the mass media is not open to a variety of ideas and opinions, the result is not only the end of democracy, but also the beginning of intellectual stagnation.

Sources: The Judiciary Authority Obtained 05/03/03

3. Fair Police Force 3.0

The Israel Police is commanded by the Commissioner of Police, who heads it under the powers vested in him by legislation and regulations and in accordance with the national policy, as laid down by the Minister of Public Security. The Commissioner serves for a minimum period of three years, whereupon his term can be extended by the Minister for another year.

Israeli policemen are relatively fair and honest. Their honesty may be challenged among high ranks, yet it would seem absurd to suggest money to the road policeman. No doubts that this institution is corrupted and there are many evidences of it, yet it is carefully hidden from the average urban inhabitant. Unfortunately, the element of racism is often present in their judgmental approach to citizens. The population of Israel consists of various clans based on different cultural traits and mentality. Policemen as well as citizens belong to some of the ethnic groups and therefore their general approach cannot be independent.

Sources:; Israeli Police Department Obtained 04/30/03; Personal knowledge

4.Currency: 4.5

The currency of Israel is the New Israeli Sheqel. In the late seventies Sheqel came to substitute Lira. The current exchange rate is 4.52 Sheqels for one US dollar. Each Sheqel is divided into 100 Agorot (singular: Agora.) Bank notes circulate in denominations of NIS 200, 100, 50 and 20 Sheqels and coins in denominations of 5 Sheqels, 10 Sheqels, 1 Sheqel and 50 and 10 Agorot. One may bring an unlimited amount of local and foreign currency into Israel in cash or travelers¹ checks. Foreign currency may be exchanged at any bank, most hotels, and ATM machines.

Sources: Israel's Central Bank Obtained 04/30/03

5. Commercial banks: 5.0

Israel has a highly developed and modern banking system. A full range of commercial services and support is provided by those banks, many of which maintain branches and offices in major international financial centers. Approximately 75 percent of the total assets of commercial banks are held by three major banking groups (Bank Hapoalim, Bank Leumi and Israel Discount Bank).

Sources: Info-Prod Research (Middle East) Ltd. Obtained 04/30/03

6.Communication System: 5.0

In recent years, the Israeli telecommunications sector has been developing at a rate that can only be described as revolutionary.

International and domestic telecommunication:

Bezeq remains the dominant player in Israeli telecommunications. This company is owned partially by government and provides local and long distance service inside the country. International long distance services have traditionally been a monopoly of Bezeq. In July 1997 when monopoly of Bezeq ended, two privately-owned facility-based carriers, Golden Lines and Barak, were also licensed. All three operators currently deliver services over a modern digital network, including several switching facilities incorporating an advanced intelligent network infrastructure.


The multi-channel subscriber TV market currently comprises three cable television operators (Matav, Tevel, Golden Channels), as well as a single DBS (Direct Broadcasting Satellite) operator (Yes). Cable TV home-pass extends to 97% percent of households, and about 60% of all households subscribe (1,082,000 cable-connected households). 25% subscribe to the DBS service operated by 'Yes' (as of August 2002).


Internet penetration is also growing quickly. Four major, and about 60 smaller, Internet service providers serve more than two million users, including 40% of households and 60% of businesses. Cellular phone companies introduced wireless Internet during 2001. Israel is the world leader in developing Internet technologies and applications, and Israeli companies operating in the field have marked several international successes.

Cellular phones:

There are 5.5 million cellular telephone subscribers in Israel, translating to over 85% percent penetration, a growth of more than one million subscribers over 2000, and compared to only 125,000 subscribers in January 1995. There are four cellular operators in Israel. Three operators are privately held (the fourth, Pelephone, is held equally by Bezeq and a private company), and all provide countrywide coverage and modern network services. The second operator, Cellcom, uses IS-136 TDMA technology and is going to deploy a second, GSM network, while Orange (Partner Communications), the third operator, uses GSM technology. The last licensed cellular operator is MIRS (February 2001), which uses iDEN ESMR technology.

Radio and newspapers:

Media plays a very important role for Israeli population. Radio and newspapers are the main source of news for every family. There are 21 radio stations that legally operate on the territory of Israel. They broadcast in Hebrew, Arabic, French, Russian and English. Newspapers are also published in several foreign languages as well as in Hebrew. According to recent statistics every third family is subscribed to a daily periodical.

Sources:; Ministry of Communication Obtained 04/30/03; Personal knowledge

7. Transportation: 4.0

Today, the train tracks to Jerusalem, one of the only capitals in the world that was not connected by rail. Theoretically anyone can get to any part of the country using a bus. “Egged” and “Dan” are two largest bus companies that controlled transportation business in Israel until the railroad was launched. The ticket prices are reasonable and affordable for average working person. However, because of the hot climate many people prefer the convenience of driving. Another reason to have a car for those who can afford it is the mobility on weekends. All the laws in Israel comply with its religious traditions therefore public transportation does not function from Saturday afternoon until Sunday evening. Statistically, Israel has one of the highest car densities per paved road in the world. Although the percentage of car owners is lower in Israel compared to the E.U. and the U.S., each year some 100,000 new cars are added to Israel's roads. One of the most heated and controversial environmental debates within Israel currently surrounds the building of the Trans-Israel Highway, the largest public works project in the country's history. The percentage of car ownership in Israel's cities is substantially higher than that of rich European capitals.

Sources: Ministry of Transport Obtained 04/14/03

8. Education: 4.5

The Ministry of Education in Israel is constantly striving to improve the country's educational system. About 70 percent of the funding for education comes from the central government, the rest comes from the cities or outside sources. From pre-school through high school there are 1.8 million students enrolled in Israeli schools. Since 1968 children have been required to attend at least 10 years of school. The educational system in Israel is divided into four stages: pre-school, primary school, intermediate school, and secondary school. Israel has 300,000 public pre-schools providing education for children between the ages of three and six. Children are required to attend school by the age of five. For the next six years children attend one of Israel's 750,000 primary schools. There are 250,000 middle schools in Israel. Israeli children are required to attend a middle school for three years, grades 7-9. Secondary school, grades 10-12, is not required, but students are greatly encouraged to attend one of the 310,000 high schools across Israel.

There are various types of schools in Israel. There are state schools, state religious schools, Arab and Druze school, and private schools. The majority of Israeli children attend state schools. Within the state schools there are three different types of secondary schools: vocational, agricultural and general. Vocational schools teach the students the fundamentals of technical and engineering skills. Agricultural schools help children earn a secondary school diploma, but do not prepare them for the bagrut. The bagrut is the entrance exam to a university, and is administered by the Ministry of Education. The general type of schooling offered in Israel prepares students for the bagrut.

In Israel, most students begin their studies at the age of 20-24, later than in other countries due to compulsory military service. All the universities in Israel (except for the Open University and the Weizmann Institute) grant bachelors, masters and doctoral degrees. Thirty-two percent of all students in universities are graduate students, a very high percentage relative to other developed countries. As the level of the degree advances, the proportion of degree recipients in the experimental sciences and mathematics increases, from 28% of bachelors students to 30% of masters students and 65% of doctoral students.

Sources: Personal knowledge; Israeli Ministry of Foreign Affairs Obtained 04/14/03

9. Social mobility: 4.5

Generally the law of Israel protects the rights of any individual. There is an unlimited opportunity to participate in any aspect of life and in any activity equally for every one. Israel is one of the countries that never experiences racism. Even though there are mutual dislikes among certain ethnic groups based on cultural differences, it does not have an essential impact on general prosperity of a person. Every one is judged by individual qualities and professionalism when it comes to business relationship. Perhaps such attitude is explained by people having the same nationality with disregard to the roots of origin. However, as it is common among the Mediterranean communities, Israelis highly value family bonds. Family businesses are very common in Israel. Probably that is why in some of the profitable companies as well as in governmental institutions cases of family protection may still be found.

Sources: Personal knowledge

10. Freedom from outside control: 4.0

Since Israel gets a large financial support from the United States, it is highly dependent on the relationship with its supporter. Officially Israel is a politically independent country, however this is true only in the declaration of State Independency. The inhabitants pay great attention to elections in the United States because the next president of the powerful country may greatly influence the Israeli economy. However, Israeli citizens are only subject to law of Israel. For example, if an Israeli in a foreign country committed a crime, the Government would prefer to depart the accused home and to judge him according to the Israeli law.

Sources: Personal knowledge

11. Foreign currency transaction: 1.5

Foreign currency control is administered by the Bank of Israel and affects transactions carried out by the Israeli residents and non-residents. In recent years the laws governing foreign currency control have undergone several reforms to remove most of the restrictions imposed on Israeli residents investing abroad and on investments by non-residents in Israel. While the basic rule is that foreign currency transactions are prohibited unless authorization is obtained, many types of foreign currency transactions are allowed by virtue of the General Permit promulgated pursuant to the Currency Control Law of 1978. The General Permit authorizes Israeli and foreign residents to conduct certain transactions through an authorized dealer (usually an Israeli bank). Israeli residents are permitted to hold foreign currency accounts in Israeli banks using shekels to purchase the foreign currency.

Since the Israeli currency is not very stable, all the prices on the housing market are set in US dollars. The renter or buyer must still pay the price in Shekels, but in reality almost any landlord would accept US dollars. Foreign currency may not be accepted in large supermarkets, but it is definitely appreciated among small dealers.

Sources: Personal knowledge; - Israel's Central Bank 04/14/00

12. Border control: 5.0

Israeli relationship with neighboring countries makes Israeli borders an essential fence that protects the country from the enemies. The borders are controlled by IDF together with Border Defense Force. There are constant attempts from the side of Palestine to cross the borders of Israel illegally, yet skilful patrols prevent it from happening. Highly secure borders make smuggling practically impossible.

Long ago Israel envisioned the concept of security in terms of a system as an outcome of the Israeli situation. It was the Israeli Defense Industry’s responsibility to design a new system in accordance with the IDF needs and technical specifications. The system design for handling the threats was laid down by the IDF. The heart of this system is a central command control and operation system, which coordinate and route information and activities. The Israeli Defense Force's (IDF) border security concept incorporates the following activities:

Detection and warning

Surveillance and tracking of suspected targets

Establishment of operational intelligence and support of information received from other sources

Improvement of reaction time and capabilities of reaction forces

Prevent of infiltration

Creating a deterrent

Supporting routine operational activities

Sources: Israel Defense Forces Obtained 04/14/03; Personal knowledge

13. Cultural & Language Homogeneity: 1.0

Israeli population is very diverse and consists of representatives from all over the world. According to the immigration law every Jew, no matter where he lives, can come to the country and get Israeli citizenship. And so, Israeli population is divided into several clans, each has its own habits and traditions. The biggest groups that characterize Israel today consist of people from Europe, Africa and Middle East. They immigrated in different time periods and different ages. Youngsters who grow up in Israel learn Hebrew quite fast, the older people on the contrary, struggle and prefer to communicate in their native language. Therefore many various languages are spoken in this country, yet the official languages of Israel remain to be Hebrew and Arabic. Perhaps the biggest community in Israel is Russian. There are already 1 million Russian Jews out of 6.3 millions of Israeli population and many are still coming. Six TV channels are available in Russian, two channels in Arabic, two in French, three in English, three in Spanish, seven in Hebrew, three in German, etc. Not only are newspapers and periodicals published in foreign languages, but even official documents are often translated as well. The rich variety of foreign shops, libraries, restaurants, clubs and other businesses that are seen on the streets of Israel explain its cultural diversity.

Sources: Personal knowledge; Israeli Ministry of Foreign Affairs Obtained 04/14/03

14. Political Effectiveness: 3.0

National defense of the country is the he main problem that essentially slows down political effectiveness in the State of Israel. The relationship with surrounding Arabic countries often makes political decisions not as flexible as desired by the population of the State. Yet when it comes to dealing with inner problems, decisions are made fast, followed by immediate implementation. For example Israel is considered one of the fastest growing countries in such fields as road construction and building business. Despite of beurocracy in many aspects of every day life, the Israeli government struggles to meet the needs of its people and try to be as effective as possible. However, in addition to the national defense issue, Israel has to deal with the religious pressure of the Orthodox Jewish community. The Orthodox population of Israel is much more conservative than the secular and has its own unique outlook based on religious traditions. For instance, public transportation does not function on Saturdays and all the retail stores are closed. Such traditions greatly influence the entire population of Israel as well as the political effectiveness of the government.

Sources: Personal knowledge

15. Institutional Stability: 5.0

Most of institutions in Israel are quite stable. Health as well as educational system undergoes minor changes during the entire development cycle of State of Israel. This young country became home for millions of immigrants that escaped from their countries either because of religious believes or economical complications. Therefore mentality of Israelis includes the concept of building new home and the entire population of Israel works towards stability in every field. Because of negative relationship with many neighbors Israeli institutions must coop with political and economical issues. It is reflected in the laws that these institutions produce. Even though the stability of institutions in Israel is totally supported by population the inner laws constantly change. Perhaps the reason for this is the political relationship with the countries that Israel interacts with.

Sources: Personal knowledge;, Israeli Ministry of Foreign Affairs, Obtained 03/25/03

16. Honest Government: 2.5

There were always some problems with Israeli government in terms of honesty. From time to time Israeli citizens are shocked with breaking news about corruption in higher layers among rulers of the country. Yet this shock is usually quickly forgotten, and it seems that bribery among the Israeli leaders became a common habit. It is also sharply reflected in local humor. The honesty of many governmental authorities was questioned during past decade. Though it rarely resulted in jail sentences. More often accused person resigned or left the country. Yet corruption occurs only behind the scene and covered by the gray web of mystery. For example, it is impossible to suggest a bribe to policeman that stopped you for speeding. Such action may result in imprisonment.

Sources: Personal knowledge

17. Common Laws: 4.0

Although the law should serve the same purpose for everyone, people with higher income may afford better lower and have superiority over poor. Yet everyone has a right to get a free lawyer sponsored by government if ones inability to pay is proven. The Israeli Judiciary system consists of: District Court (1 or 3 judges) -- Appellate jurisdiction over magistrates' courts; original jurisdiction in more important civil and criminal cases.

Supreme Court (1, 3, or 5 judges) -- Ultimate appellate jurisdiction; right to address issues when necessary to intervene for sake of justice; original jurisdiction in petitions for orders against the government, its ministers and all public officers/ agencies; authority to release persons detained or imprisoned illegally; power to override decisions of other courts should they exceed their jurisdiction.

Special Courts (1 judge) -- Traffic, labor, juvenile and municipal courts, with clearly defined jurisdiction; administrative tribunals.

Religious Courts (1 or 3 judges) -- Jurisdiction in matters of marriage and divorce; in rabbinical courts for Jews; sharia courts for Muslims and Druze; ecclesiastical courts for Christians.

Sources: Personal knowledge;, The Judiciary Authority 03/25/03

18. Central Bank: 4.5

The Bank of Israel Law places special emphasis on the independence of the Bank. Thus, the Governor of the Bank is appointed by the President of Israel for a term of five years, at the recommendation of the government. By law, the Governor also serves as economic advisor to the government on currency and other economic matters. As economic advisor to the government, he participates in meetings of the Ministerial Committee for Economic Affairs on a permanent basis, and in other economic discussions of the government. The current Governor of Bank of Israel is Dr. David Klein.

The Bank of Israel is situated in Kiryat Ben Gurion in Jerusalem, close to the Knesset (Israel's parliament), the Supreme Court, and government ministries. The Bank currently has some 800 employees, about 300 of whom have degrees in economics, accountancy, law, etc. Under the provisions of the Bank of Israel Law, The Banking Law, and the Currency Control Law, the Bank of Israel has a range of responsibilities. The main ones are: Monetary policy, Regulating and directing monetary policy, Economic advisor to the government, Foreign currency activity, Foreign exchange control, Banking supervision, Issuing coins and banknotes, Banker of the government and of the banks, and Representing Israel in international institutions.

Sources: Personal knowledge;, Bank of Israel Obtained 03/05/03

19. Domestic Budget Management: 3.5

The year 2002 was the year of contrasts in Israeli domestic budget management. In first quarter of this year the surplus showed 1,469 million of NIS but second quarter brought sharp decrease of revenue and a deficit reached 7,022 million NIS. Third quarter was finished with lower number of budget deficit - 3,004 million NIS because of cutting down of Government expenditures. According to the statistics published the total government revenue in 2002 was 191,254 million NIS and total sum of expenditures reached 205,115 million NIS. Therefore, Israeli budget finished year 2002 with an average deficit of 13,861 million NIS. In the beginning of 2003 Israeli budget already misses 3,096 million NIS and the total amount of deficit expected by the end of this year is 15,337. Even though a deficit in Israeli budget constantly present, general overview shows that during last decade budget deficit was decreasing with every year.

Sources:, Ministry of Finance Obtained 03/05/03;, Central Bureau of Statistics Obtained 02/14/03

20. Government Debt: 1.5

At the end of June 2002, the outstanding government debt was 103 percent of GDP. As a result, the total annual debt burden (principal plus interest) was NIS 70-80 billion, equal to approximately one third of the total state budget. The Israeli government debt has a unique structure that makes it more stable and supports Israel's country rating. Since the 1980s, the share of external debt has been decreasing, from 46 percent down to 28 percent as of the end of June 2002. Eighty percent of the government debt is linked to the Consumer Price Index and is unaffected by disinflation. The impact will be felt with respect to the remaining 20 percent of the debt (NIS 60 billion). The lower the inflation rate is, the greater this portion of the debt becomes because it was raised at fixed interest in the past. The increase in real interest rates will also be reflected in the corresponding line in the state budget. The disinflation process has also raised real short- and long-term interest rates, which affect cost of current issues.

The total government debt was NIS 488 billion at the end of June 2002 as against NIS 448 at the end of 2001 and NIS 416.5 at the end of 2000. The domestic debt was NIS 354 billion at the end of June 2002, as against NIS 326 billion at the end of 2001and NIS 305.2 billion at the end of the previous year. The external debt was NIS 135 billion at the end of June 2002 as against NIS 122 billion at the end of 2001 and NIS 111.3 billion at the end of 2000.

Sources: Ministry of Finance Obtained 03/05/03

21. Private Property: 3.5

Neither citizens nor foreigners can own a land of Israel. Any individual is able to build or purchase house in Israel however he/she cannot own even a single acre of land. All the land belongs to the State and if one wishes to use it for private purposes, one must lease it from the State of Israel. Such rent agreement must be renewed every 49 years. The price of the rent is usually included in price of apartment or house and hardly mentioned at the moment of purchasing property. Yet if one wishes to use a land in purposes different from residential the price must be negotiated with corresponding government institution. The price may vary depending of use.

Intellectual property in general, and copyright protection in particular, have suffered from a piecemeal approach in Israeli legislation. This is a result of many separate laws, amended time and again over the years, which with each change are losing more of their ability to function as a comprehensive foundation for intellectual property protection in Israel. The existing Copyright Law in Israel originated in the 1911 British Copyright Law. The Copyright Law had been under attack by both Israelis and by interest groups abroad, but both agree that while the law is outdated and inadequate, it is only part of the copyright problem in Israel today. The rest of the problem originates from the lack of action taken by the Israeli government to enforce copyright protection.

Sources: Personal knowledge;, Meridian Companies House, Obtained 02/26/03

22. Economic Statistics: 5.0

Many different Israeli’s institutions and websites process and analyze data. However all of them correct and update internal information in accordance with Central Bureau of Statistics. Central Bureau of Statistics is considered the most accurate source of information about employment, wages, mortality and many other aspects in various fields. The most current information can be obtain from it’s website or from periodical booklet that released ones a year. The website is equipped with search engine where user can type a particular question. General information about economy is presented through various graphs and diagrams. CBS was originated for use and convenience of government clerks and institutions. Yet now-days most Israeli organizations that use any kind of data make reference to Central Bureau of Statistics. And so, it may be seen as the most reliable source of information about State of Israel.

Source: Personal knowledge

23. Protection of Public Health and Safety: 5.0

Israel's high standards of health services, top-quality medical resources and research, modern hospital facilities and an impressive ratio of physicians and specialists to population are reflected in the country's low infant mortality rate (7.5 per 1,000 live births) and long life expectancy (79.1 years for women, 75.3 for men). Health care for all, from infancy to old age, is ensured by law and the national expenditure on health (8.2 percent of the GNP) compares favorably with that of other developed countries.

The National Health Insurance Law provides for a standardized basket of medical services, including hospitalization, for all residents of Israel. Medical services are supplied by the country's four comprehensive health insurance schemes, which must accept all applicants regardless of age or state of health. The main sources of funding are a monthly health insurance tax of up to 4.8 percent of income, collected by the National Insurance Institute, and employer participation in the cost of insurance for their employees.

The country's population is served by an extensive medical network comprising hospitals, outpatient clinics and centers for preventive medicine and rehabilitation. Hospital care includes highly advanced procedures and techniques, from in vitro fertilization, CAT scans and complicated brain surgery to bone marrow and organ transplants. Mother-and-child care centers, for women during pregnancy and children from birth to early childhood, offer prenatal examinations, early detection of mental and physical disabilities, immunizations, regular pediatric check-ups and health education.

Sources:, Israeli Ministry of Health Obtained 02/26/03; Peace Organization Obtained 02/26/03

24. High Wage Policies: 3.0

The areas in Israel with the highest average wage are the central region and Tel Aviv, where the more prosperous cities and towns are located. The areas with the lowest average wage are the north and south, where many Arab localities and Jewish development towns are located, and which are far away from the main centers of employment. Residents of Arab localities have the lowest average wage - NIS 4,477 a month. This is approximately 30% less than the average wage nationally, which in 1999 was NIS 6,494 a month. The second lowest wage earners, at NIS 5,510 a month, are residents of development towns, who earn some 15% less than the average wage nationally, followed by residents of regional councils, at NIS 6,248 a month. Thus place of residence is strongly related to income level.

The living expenses in Israel are quite high. Not every worker that earns an everage salary can afford renting an apartment without roommates. In particular many young couples suffer from inconvenience in this field. A family with at least two salaries combined can own a car, though it is quite hard for a single working person.

The issue of Israel's minimum wage has recently commanded headlines due to the adjustment of its level in April by an exceptional 8.5 percent, from NIS 2,400 to NIS 2,609 per month. Israel's Minimum Wage Law, which went into effect in April 1987, set the minimum wage at 45 percent of the national average wage. The law also states that the minimum wage shall be adjusted by the rate of the Cost of Living Allowance whenever COLA is paid (usually twice a year, in February and August). In 1999, 29.5% of all wage earners were receiving the minimum wage or less. To summarize: in Israel, expenses are high, the median salary is low, but the majority of the population has a considerable net worth, relative to income, though much of this is tied up in home equity.

Sources:, Israeli Ministry of Foreign Affairs Obtained 02/26/03; Central Bureau of Statistics Obtained 02/26/03

25. Environmental Protection: 1.0

Israel, with a population that has increased from 800,000 in 1948 to 5.6 million today, is the only developed country in the world in which population continues to grow against a backdrop of population density. The master plan anticipates that by the year 2020, the country's population will exceed 8 million, its built-up space will treble, and the number of cars on its roads will increase three-fold, reaching 3.6 million. Without wise planning, the Israel of tomorrow may well resemble a never-ending field of asphalt and concrete, its air polluted, its groundwater contaminated and its serenity disturbed by traffic noise and pollution. Only today, Israel is taking its first steps toward the preparation of a national strategy on sustainable development - development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

National estimates of air pollutant emissions have shown that with the exception of three pollutants (sulphur oxides, total particulate matter and lead) emissions of all pollutants have increased drastically since 1980. The rapid emergence of industrial plants in the vicinity of urban centres coupled by a dramatic increase in the number of motor vehicles has exacerbated air pollution problems throughout the country.

The total quantity of municipal waste in Israel, including yard waste and industrial waste, reaches 12,000 tons per day. Another 5,000 tons of solid waste including construction debris, are produced daily. If present rates of growth continue (5.5% per year), Israel will face a serious problem in near future. Today, about 18% of the total amount of municipal and industrial waste is recycled, of which about 50% constitutes post-consumer recycling.

Indubitably, under conditions of water scarcity, on the one hand, and intensive development and population growth, on the other hand, the degradation of water quality may well be the most critical environmental problem facing Israel today. Today, several of Israel's most polluted rivers are undergoing a transformation from sewage carriers into channels of life. Cleanup and rehabilitation programs have already been initiated for such polluted rivers as the Harod, Alexander, Yarkon, Kishon and Lachish rivers. Unfortunately these steps have been taken only recently and represent only small improvement in the field of Israeli environmental protection. Sources:, British Ministry of Foreign Affairs, Obtained 02/14/03; Personal knowledge

26. Strong Army: 5.0

The Israel Defense Forces are the state of Israel's military force. The goal of the IDF is to protect the existence of the State of Israel and her independence, and to thwart all enemy efforts to disrupt the normal way of life in Israel. The Ministry of Defense receives about 15% of the entire budget of State Israel. Israeli army considered is one of the most professional and highly skillful forces in the world. It deserved respect worldwide in such fields as fighting with terrorism as well as in many others. Israeli pilots are often mentioned as examples of professionalism and courage in many European countries and North America.

Service in the Israel Defense Forces (IDF) is a measure of involvement in the country's life. Most men and single women are inducted into the IDF at age 18, women for two years and men for three, followed by service in the reserves, men up to age 51 and single women to age 24. In essence, the society and army are one, as a broad spectrum of the population serves periodically over many years, with those in and out of uniform virtually interchangeable. Since soldiers often hold ranks not necessarily corresponding with their status in civilian life, the IDF has become a highly effective equalizer in the society and contributes greatly to integrating individuals from all walks of life.

IDF soldiers are obligated to fight, to dedicate all their strength and even sacrifice their lives in order to protect the State of Israel, her citizens and residents. IDF soldiers will operate according to the IDF values and orders, while adhering to the laws of the state and norms of human dignity, and honoring the values of the State of Israel as a Jewish and democratic state.

Sources: Israel Defense Forces Obtained 02/14/03; Personal knowledge


Foreign Trade As a small economy with a relatively limited domestic market, Israel is highly dependent on foreign trade. Exports have been a catalyst for Israel's economic growth.

Foreign trade deficit excluding diamonds in January and February was $1.6 billion. The deficit with the EU was $700 million, 10% higher than the comparable period in 1999. Imports from the EU was 3.7% than exports. The trade deficit with the United States (excluding diamonds) was $365 million. Imports from the United States grew by $230 million, while exports grew by $105 million compared to the same period last year. Exports to Asian countries (excluding diamonds) amounted to $87 million and imports amounted to $104 million.

The perennial problem of the trade deficit is the high price Israel has had to pay for the 'miracle' of attaining rapid growth while successfully meeting the four national challenges. This yearly gap between a high level of imports and a significantly smaller scale of exports indicates economic dependence on foreign resources. Thus, a primary policy goal of every government has been to achieve economic independence, the point where exports will finance all imports. Over the first 50 years of Israel's existence, this deficit has grown 28-fold (in current prices): from $280 million in 1950 to $7.8 billion in 1995, then down to $ 4.7 billion in 2001. However, the deficit continuously decreased in relative terms, indicating that the problem is gradually being solved: whereas in 1950 exports financed only 14 percent of imports, in 1960 this ratio was 51 percent, and in 1990 it stood at 78 percent. This improvement and the decline in the external debt stopped in the 1990s, owing to accelerated imports required to facilitate the GDP's surge and a reduction in unemployment; nevertheless, by 2001 the export/import ratio rose to 89 percent.

In 2002 amount of total export was 2219.8 mill., total amount of import was 2435.8 mill., GDP was 113.5 mill. Following the formula Imp + Exp / GDP, it is seen that foreign trade in 2002 was 4l% of total GDP.

Sources:; Israeli Ministry of Foreign Affairs, Obtained 02/14/03; Ministry of Finance Obtained 02/14/03

28: Protection of Foreign Currency Earning Enterprises: 4.5

Israeli trade policy has been aimed at continuing the expansion of its network of bilateral trade agreements while enhancing the process of trade liberalization at the multilateral level. After completing free trade agreements with our two major trading partners - the European Communities and the United States - during the 1980’s and with the EFTA countries in 1992, Israel has expanded its free trade agreements to Canada, Turkey, the Czech Republic, the Slovak Republic, Hungary, Poland and Slovenia, and most recently has concluded free trade area agreements with Mexico, Romania and Bulgaria.

Joining the General Agreement on Tariffs and Trade (GATT), as well as instituting a free trade area for industrial products with the European Community (1975) and for all products with the United States (1985) has enhanced the competitiveness of Israel's exports. Hence, Israeli goods can enter both the European Union (EU) and the United States - together comprising 630 million consumers - duty free. This enables local producers to aim for a market over a hundred times larger than the domestic one and attracts investors who wish to export their products to Europe without paying duty.

Sources:, Israeli Ministry of Foreign Affairs, Obtained 02/14/03

29. Management of Foreign Currency Budget: 3.0

Exports increased in the year 2002 by approximately 23%, a higher rate than the 12% annual increase in imports. As a result, Israel’s balance of trade deficit has decreased and reached -216 million $. Industrial exports represent the principal contribution to the increase in exports. A comparison with last year’s international trade shows that while export to European markets decreased somewhat, exports to Asia and America increased.

In recent years, about 70 percent of all imports of goods - amounting to $31 billion in 2001 - have been production inputs and fuel; 42 percent of these arrived from the European Union, with the United States providing 23 percent and Asia 15 percent (the remaining 20 percent came from other countries). At the same time, 32 percent of Israel's exports of goods were directed to the European Union, 32 percent to the United States, 16 percent to Asia and the remaining 20 percent to other countries. During most of the 1990s Israel's industrial exports to the U.S. exceeded its imports from there, and since 2000 this is true even excluding the export of diamonds.

Sources:, Israeli Ministry of Foreign Affairs, Obtained 02/14/03

30. Layers of collective action: 4.3

The Knesset is the house of representatives (the parliament) of the State of Israel, in which the full range of current opinions are represented. The Knesset supervises the work of the Government, which is does by means of its committees and the work of the plenum. The Knesset has several quasi-judicial functions, which include the power to lift the immunity of its members, and the power to have the President of the State and State Comptroller removed. The main function of the Knesset as the legislative authority, is to pass laws. Legislation can be initiated by the Government (Government bills), by a single Member of Knesset, or group of Knesset members (private members' bills), or by a Knesset Committee.

The Members of Knesset function in the Knesset within the framework of Parliametnary Groups or as individual Knesset Members. At the opening of the first session of every Knesset the number of Groups corresponds to the number of lists that participated in the elections and were elected. In the course of the Knesset's term, Groups are liable to split or merge. Most of the work of the Knesset is conducted on a Group basis. At any given time there are 120 Knesset Members. The major groups are formed from members of Avoda and Likud, two leading parties in Israel.

There are many groups outside of Knesset, which poses a great power. For example “B’Tselem” : The Israeli Center for Human Rights in the Occupied Territories was established in 1989 by a group of prominent academics, attorneys, journalists, and Knesset members. It endeavors to document and educate the Israeli public and policymakers about human rights violations in the Occupied Territories, combat the phenomenon of denial prevalent among the Israeli public, and help create a human rights culture in Israel. Another example would be “Gush Shalom”. The primary aim of Gush Shalom is to influence Israeli public opinion and lead it towards peace and conciliation with the Palestinian people.

Sources:, Israeli Ministry of Foreign Affairs, Obtained 02/14/03;, Central Bureau of Statistics, Obtained 02/14/03;, Knesset official website, Obtained 02/14/03

31. Pro-business climate: 5.0

Over the last few years, the Israeli business climate has become more welcoming and supportive of small businesses and independent workers (atzmai'm). Many olim (new immigrants) find that going into business for themselves is the answer to their employment and financial needs. Enterprise coordinators, employed by the Ministry at over 20 local branches, offer basic guidance and support in initial decision-making phases, distribute information and administer applications for loans.

For those who conduct a business from home a portion of household expenses, such as rent, utilities and telephone, are deductible. Special regulations apply to deducting automobile expenses. The Ministry of Industry and Trade views small and medium-sized businesses as an important source of economic growth and the creation of economically stable employment. Small and medium-sized businesses are defined as businesses employing 1-100 employees.

Sources:, National Insurance, Obtained 02/10/03;, Israeli Ministry of Foreign Affairs, Obtained 02/10/03

32. Government Enterprises: 4.5

The government of Israel sponsors several types of incentive programs to industrial enterprises located in Israel that meet certain criteria. Government support is provided primarily to industrial and tourism enterprises that assist the nation in meeting its overall economic objectives. These objectives include competing in international markets, utilizing innovative technologies, creating employment, producing high added value products and generating income in foreign currency. Government incentives, which include grants as well as tax benefits, can generally be grouped into three categories: investment incentives, industrial R&D incentives, and export-linked incentives. Companies at all stages of the corporate life cycle have the opportunity to benefit from the different incentive programs providing they meet the criteria determined by the government. Today Israeli government owns 114 companies in various fields. Among them such giants as “Bezeq” and Israel Electric Corporation (IEC). "Bezeq" The Israel Telecommunication Corp., Israel's former telecom monopoly, is facing an open market. The company, which controls the country's fixed-line phone services, has been reducing costs to stay competitive. It also is Israel's #1 broadband ISP and owns 50% of leading mobile phone company Pelephone (Motorola is selling its half). Bezeq's fiber-optic network is fully digitalized and has 3 million access lines. A government plan to sell a 50.01% stake in Bezeq is back on track after being stalled after the company's once-largest private shareholder, Gad Zeevi, was implicated in a financial scandal. The Israeli government owns 54.6% of Bezeq; Zeevi Communications owns 20%.

At least there's one thing Yasser Arafat and Ariel Sharon have in common: Israel Electric Corporation (IEC) generates, transmits, and distributes electricity to all of Israel and the Palestinian Authority. Founded in 1923 as The Electric Company for Palestine, IEC became a government-controlled monopoly shortly after the Jewish State was founded in 1948. Serving nearly 2.2 million customers, the company has about 9,700 MW of primarily fossil-fueled generating capacity.

Sources:, Israeli Ministry of Foreign Affairs, Obtained 02/09/03;, Business Information Authority, Obtained 02/09/03;, News site Affairs, Obtained 02/09/03

33. International security agreements: 2.0

Fifty years ago, in May 1948, Israel gained its independence and was immediately attacked by five Arab armies. Fighting between Arab and Jew had started much earlier and the War of Independence really began in November 1947, when the United Nations General Assembly voted to partition Palestine. Since then Israel has fought five wars against Arabs, and the years between them have witnessed frequent cross border raids and terrorist attacks. Israel now faces three distinct threats: conventional war with the Arab world; attack by long-range missiles - possibly with nuclear, chemical or biological warheads (WMD); and terrorist attack mounted from both within the state or across its borders. On the plus side, Israel has peace treaties with Egypt and Jordan, negotiations have taken place with the Syrians, and a start has been made to solve the Palestinian problem. Despite the peace treaty, Egypt still remains an existential threat to Israel. To the east the main threat even before the peace treaty was signed was not Jordan, whose army is the most respected by Israel, but Iraq. Israel redeployed one of its armored divisions from Sinai, immediately after the Egyptian peace treaty was signed, to the eastern West Bank. In the north, Lebanese forces have not attacked Israel since the War of Independence; however lodgers there have launched terrorist attacks over the border for many years. A permanent settlement with the Palestinians and peace agreements with Syria and Lebanon are essential for the stability of the peace agreements achieved with Egypt and Jordan, as well as for paving the way towards peace with other Arab nations. The U.S. goal in the Middle East is to end violence and terror and lay out a path to end the occupation of the West Bank and Gaza, U.S. Ambassador John Negroponte said December 3. Perhaps it is considered to be one of the heaviest aspects in field of security support in Israel.

The European Union - a political and economic institution - is an important and influential actor in our region. Meretz is strengthening ties with the countries of the European Union and encourages the implementation of regional cooperation projects that are financed by the European Union.

Sources:, Israeli Ministry of Foreign Affairs, Obtained 02/09/03

34. Protection of domestic enterprises from government mandated costs: 2.0

In its early years, the Israeli economy was micro-managed by the government, which not only controlled companies but also imposed strict rules on the capital markets, trade, land development and labor relations. Although there has been substantial liberalization in recent years, by Western standards, the Israeli government continues to be interventionist. All commercial enterprises must have business permits in order to operate. Permits are usually issued by the municipalities after prior approval by other government departments such as the Ministry of Health. Permits must be renewed annually. The progressive system of taxation makes maintaining stable income of the small businesses quite hard. The highest rate of income tax is 50%. Together with payments to National Insurance it makes quite large monthly payments that small domestic enterprises must subtract from their income. An average extra time that small business spends on paper work yearly is 220 hours.

However, Israel's development of an entrepreneurial high-tech economy over a few short years and against immense odds is a remarkable achievement. In the last five years, Israeli high-tech companies have probably produced more millionaires than Israel had during its first 45 years of existence.

Sources:, Peace organization, Obtained 02/09/03;, Israeli Ministry of Foreign Affairs, Obtained 02/09/03


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