ECONOMIC SURVEY - 08-Jun-95

(COMMUNICATED BY GPO ECONOMICS DESK 8 June 1995

GOVERNMENT SECTOR:

* CABINET APPROVES FREE TRADE PACT WITH EUROPEAN UNION.
On 7.6.95, the Cabinet decided to initial the draft Free Trade Area Treaty with the European Union which updates the 1975 FTA Treaty with the EC. The new draft treaty includes full Israeli participation in the EU's R&D programs, and more favorable import terms for Israeli goods. Israel will continue to negotiate concerning processed foods and agricultural goods, Outward Processing Traffic primarily for textile goods, and government procurement in the telecommunications sector in order to improve the conditions governing Israeli export. Israel is hoping that the draft treaty will be approved by the EU at its EU Foreign Ministers meeting to be held 12-13.6.95.
Foreign Ministry - Danny Shek, 972-2-303343

DEFENSE SECTOR:

* DEFENSE EXPENDITURES WERE 14.3% OF GDP IN 1993, ACCORDING TO NEW BANK OF ISRAEL STUDY.
In 1993, defense expenditures were 14.3% of the GDP, and were NIS 4.3 billion higher than reported earlier by the Central Bureau of Statistics, the Bank of Israel reported. The Bank of Israel study is a more comprehensive study, and took into account a larger number of variables than earlier studies. The new study found that the economic costs of regular army service, reserve duty, treating those wounded during their service, maintaining emergency inventories, and civilian defense preparations were all higher than earlier figures showed. If aid from foreign countries is included together with the GDP, the burden of Israel's defense spending was 9.2% of its GDP in 1993. Bank of Israel - Ohad Bar-Efrat, 972-2-6552712

* ISRAELI FIRMS TO PARTICIPATE IN PARIS AIR SHOW BEGINNING NEXT WEEK.
Israel Aircraft Industries, Elta, Rafael, Tadiran, BVR, Rada, Elisra, Silver Arrow, and other Israeli companies will be participating in the Paris Air Salon beginning in Paris next week. Among the new products to be shown by local firms are the upgraded MIG by IAI, a fourth generation air-to-air missile by Rafael, and a new unmanned aerial vehicle by Silver Arrow.
SIBAT - David Shuval, 972-3-6975916

FOREIGN TRADE:

* VOLKSWAGON TO INVEST $400 MILLION IN DEAD SEA WORKS MAGNESIUM METAL PLANT.
Germany's Volkswagon and Dead Sea Works signed a Memorandum of Understanding for the German concern to become a partner in a magnesium metal plant currently under construction in Sdom. Volkswagon's Chairman of the Board Dr. Freidrich Piech and Israel Chemical's Chairman of the Board Shoul Eisenberg signed the MOU for the $400 million investment in the presence of PM Rabin and German Chancellor Kohl million. Dead Sea Works is a subsidiary of Israel Chemicals. VW will hold a 35% share in the plant whose initial production capacity is 27,500 tons annually. Its product will be used in the production of lighter more environmentally friendly vehicle parts, according to Piech.
Israel Chemicals - Ella Bar-On 972-3-5765232

MACRO-ECONOMIC SECTOR:

* IMF REPORT CRITICAL OF ECONOMY'S STRUCTURE.
The report of the International Monetary Fund delegation studying the Israel economy criticized the country's economic structure, though it pointed out that the economy was in a far better state than during the 1980s. According to the report, which was presented to the Bank of Israel, a number of recent developments threaten the continuation of Israel's satisfactory economic performance. These developments include: continued rapid rate of underlying inflation; substantial widening in the external account deficit accompanied by a marked decline in private sector savings; a slowing in the structural reform process such as increases in public sector wages and the very slow pace of privatization.
Bank of Israel - Ohad Bar-Efrat, 972-2-6552712

* NIS 517 MILLION RAISED BY PRIVATE SECTOR DURING FIRST QUARTER OF 1995.
During the first quarter of 1995 the private sector raised NIS 517 million, continuing an ongoing decrease in the amount of money raised by Israeli concerns both locally and abroad. According to the Bank of Israel, this trend began during the second quarter of 1994, and reflects the fall in share prices, by an average of 47%, of shares on the Tel Aviv Stock Exchange. In real terms, TASE share prices rose by 300% from 1989 through the end of 1993.
Bank of Israel - Ohad Bar Efrat 972-2-6552712

DELEGATIONS: