ECONOMIC SURVEY - 04-Jun-96

(COMMUNICATED BY GPO ECONOMICS DESK) 4 June 1996

GOVERNMENT SECTOR:

* PRIME MINISTER-ELECT NETANYAHU MAKES ECONOMIC STATEMENT DESIGNED TO CALM INVESTORS.
On Sunday, 02.06.96, Prime Minister-elect Benjamin Netanyahu made the following statement prior to the start of trading on the Tel Aviv Stock Exchange: "Prime Minister-elect Benjamin Netanyahu is committed to a free market policy, and attributes great importance to creating an atmosphere of stability that will bring an increase in domestic and foreign investment. Netanyahu views the stock exchange as a central instrument for growth and for raising economic capital. Netanyahu plans to give priority to privatizing government companies and to introducing responsible economic policies that will ensure stability, a drop in inflation, and the enlistment of continued support for the State of Israel's economy."

According to Ha'aretz, the statement was issued after senior economic figures approached Netanyahu and his aides with a request that his economic policy be clarified "in order to calm concerned investors in Israel and abroad." The TASE Mishtanim index subsequently rose by 1.9% and the Maof index rallied 1.78% higher, in contrast to declines registered on the day following the elections. (Ha'aretz, 3.6.96, p.1)

Netanyahu also laid forth the guidelines of his economic policy during his victory address that evening. "We believe that every Israeli citizen merits true equality of opportunity in order to realize his full potential... Finally, [there will truly be] a free market economy that is not controlled by special interests or bureaucrats. An economy that does not halt every initiative... It is impossible to separate the economic side from the social one because only with a strong economy can we assist the weaker strata and we will help them. We will close poverty gaps. We will help the distressed neighborhoods and development towns, the elderly, the elderly among the new immigrants, and the discharged soldiers... A free market and social openness this is the key to bringing millions of new immigrants to Israel, and we plan to do this."

MACRO-ECONOMIC SECTOR:

* BUDGET DEFICIT OF NIS 3.1 BILLION SINCE BEGINNING OF YEAR.
The government's budget deficit through May 1996 amounted to NIS 3.1 billion, or 41% of the target 1996 budget deficit of NIS 7.6 billion, the Finance Ministry reported. A deficit of NIS 308 million was recorded in May alone.
Finance Ministry - Eli Yosef, 972-2-317201

* FOREIGN CURRENCY RESERVES DROP $200 MILLION IN MAY.
Israel's foreign currency reserves fell by $200 million to $9.252 billion in May, the Bank of Israel reported. The decrease resulted from government transfers abroad, to finance its activities, the bank reported.
Bank of Israel - Ohad Bar-Efrat, 972-2-6552712

* ECONOMIC INDICATORS FOR MARCH-APRIL 1996.
During March-April 1996, the increase in public consumption slowed, merchandise exports and tourism income declined, the import of production inputs and capital goods expanded, and cement sales fell, according to the Central Bureau of Statistics. Ha'aretz (4.6.96, p.C2) called these "signs of a slowdown in economic activity during March and April." Cement sales during the first quarter of the year were down 20%, compared to the last quarter in 1995. Industrial and commercial exports (excluding diamonds) fell from February to April. Imports of production inputs rose at an annual rate of 7-8% for March and April; this is at a slower rate than during the period from November 1995-January 1996. The number of tourists arriving in Israel has held steady since October 1995, though the number of tourist overnights has been dropping since January 1996.
Central Bureau of Statistics - David Neumann, 972-2-6553400

* 10% INCREASE IN CAR IMPORTS DURING MAY.
A 10% increase in automobile imports was recorded during May, compared to the same month in 1995, the Finance Ministry reported. Other May increases were noted in the import of washing machines, televisions, video machines and dishwashers; refrigerator imports held steady during May.
Finance Ministry - Eli Yosef, 972-2-317201

* STEEP DECREASE IN IMPORTED CAPITAL FOR FIRST FOUR MONTHS OF 1996.
Capital imported into Israel by the private/non-banking sector fell to $1.68 billion during the first four months of the year, compared to $3.88 billion for the same period in 1995, the Bank of Israel announced. The decline was primarily due to a drop in the amount of capital imported by Israeli citizens, standing at $1.05 billion as compared to last year's figure of $3.29 billion, resulting from a reduction in foreign currency credit sought from local commercial banks. During the first third of 1996 however, capital imported by foreign residents rose to $630 million from $587 million for the same period last year.
Bank of Israel - Ohad Bar-Efrat, 972-2-6552712