In a year when much of the world endured a protracted economic crisis, and Israel itself was politically torn by the invasion of Lebanon, that country&rsquos economy appeared deceptively unruffled. True, inflation rebounded to a near-record level of 131.5 percent,  but most of the country’s citizens seemed to be well cushioned from its effects. Unemployment stood even at 5 percent — about 65,000 persons — a rate that has not changed since 1979. Unemployment does not seem to have been exported to the Occupied Territories either, as a record number of workers from the West Bank and Gaza are currently employed in Israel. Real wages did decline by nearly 3 percent in the face of strong inflation, but per capita private consumption nevertheless increased by 5 percent. These two factors — a stable, low level of unemployment and a continued though slow rise in consumption — help explain why the Begin government’s opposition remains confined to those outraged by the conduct of the war. 
There are several indicators that this relative tranquility may not last indefinitely. One is the continuing high inflation. Officials assert that the rate will be held to 90 percent in 1983, but none of the country’s major businessmen are betting on that. The indicators for January and February point in just the opposite direction.  Underlying the rate of inflation is the fact that in 1982 the country’s gross national product remained absolutely stagnant, registering no increase at all for the first time since the early 1950s.  Increased consumer demand was therefore met by imports, financed by government spending and private borrowing on the international market.
At least one source of non-wage income may no longer be available to Israelis in 1983. Many wage and salary earners compensated for declining real wages by investing in the high-flying Tel Aviv stock market, where stock values had increased (after inflation) an average of 60 percent in 1980, 25 percent in 1981 and 70 percent in 1982. Some issues had risen by many times these rates. Exchange officials estimate that some 700,000 Israelis — nearly one out of every three adults — were regular investors, at least half of them entering the market only over the last three years. When asked to explain the impressive performance of stocks across the board, Exchange Chairman Meir Heth declared that it “was certainly not based in any basic factors in the economy.” This was not really accurate. The factor was inflation. With no capital gains tax for non-professional investors, Israelis turned to the stock market to keep ahead financially. Most workers are paid once a month. They have relatively large amounts of money at one time, the value of which they know will decline substantially by month’s end. They would buy stocks expecting to withdraw some funds toward the end of the pay period to cover bills and overdrafts. In late January, a government announcement of minor changes in rules governing mutual funds triggered a four-day panic that wiped out a year’s worth of price increases. The market has since leveled off, but thousands of small investors have been badly hurt.  At the very least, the plunge probably means that it will no longer function as a safety valve for frustrated wage earners.
Another factor which may worsen in the coming year is unemployment. A steady 15 percent drop in industrial exports over the past year has already begun to force some recent layoffs. According to Yeshayahu Gavish, director-general of the giant Koor Industries, companies have so far minimized firings by reducing the work week and persuading workers to take much longer vacations. He worries that many firms can keep up these gambits for only so long before “massive unemployment sets in.”  Government pressures have restrained companies from widespread dismissals, but Eli Hurvitz, president of the Manufacturer’s Association, fears the government may lose control of the situation. For those plants producing mainly for export, he says, “Three bad months will force them to close down and fire their workers. Unemployment will also help fight inflation, but the price is fatal.” The government, he declared last October, may “have to declare that an economic emergency exists.”  Despite threats of unemployment, a successful strike of hundreds of thousands of public-sector employees in December for a 12 percent wage hike over and above cost-of-living adjustments suggests that wage earners will not suffer real wage setbacks willingly.
Despite the decline in exports, imports have continued to increase and now account for some 60 percent of the country’s gross national product.  The increase has been mainly in consumer durables — household appliances and especially automobiles.  The trade deficit was nearly $5 billion in 1982, up 12 percent from the year before.  As in the past, this deficit has been covered by official loans and grants, chiefly from the US government, and by Israeli government and private bank borrowings from the international banks. (The Israeli treasury went to the international banks in the first months after the invasion of Lebanon in anticipation of possible economic pressures from the US.)  Israel’s declared foreign debt is now more than $20 billion, and perhaps as much as $26 billion. Between October 1982 and October 1983, according to the Bank of Israel, the country is obligated to pay out $5.3 billion to service the interest and repayment terms on this debt.  In addition, the country will have to finance the trade deficit for the present year. If the deficit remains at the 1982 level, Israel will have to raise over $10 billion abroad in order to “maintain the appearances of solvency.”  The decline of exports has continued into the first months of 1983, and apparently exports of military goods have been no exception to this trend. The Central Bureau of Statistics reported in March that the deficit for January-February 1983 was 20 percent higher than the same period in 1982, despite a 17 percent drop in the cost of oil imports. 
In early 1979, a leading Israeli banker told a reporter that “the public here doesn’t pay the price of inflation. The United States and the Jewish people around the world do that.”  Today, capital transfers from abroad amount to about $1,500 per Israeli citizen, an amount more than three times higher than that of Jordan, “the next most aid-intensive country of any size.”  Official US government aid, financed of course by US taxpayers, is the most important component. Total US direct aid budgeted for fiscal 1983 is $2.5 billion, and may go to $3.2 billion in 1984. The total transfer of US resources includes another $200 million in military contracts and concessionary Export-Import Bank loans. Another $1.5 billion comes from private donations and investment, including the sale of Israel Bonds. Bonds sales gross about $450 million per year; special state and federal laws have granted them the status of “investment-grade assets,” thus sanctioning financial institutions and pension funds to purchase them within “prudent man” rules despite their low yield. 
Israel’s short-term borrowings over the last four years have come to an estimated $3 billion, consisting of commercial bank loans and deposits by US branches of Israeli banks.  These loans are rolled over, or renewed, with the tacit understanding that US aid will continue at least at its present level in order for the country to maintain its precarious liquidity.
Although military imports are not responsible for the latest increase in Israel’s deficit, the country’s worsening economic plight is partly attributable to the large proportion of Israeli resources devoted to the military. The direct costs of the Lebanon invasion have been estimated by the defense ministry at $1.15 billion. Most of this represents internal expenditures for the war and occupation rather than hard currency purchases of imported equipment. Close to this amount is being raised by the “compulsory loans” and special war levies decreed last July. Only about a third of this sum has been earmarked for the Defense Ministry, however. Treasury officials assert that the levies had in fact been planned for months before the war and had no direct relation to it.  Clearly the government had followed the prescription of Haim Ben-Sahar, president of Tel Aviv University and a leading economist, who advised Prime Minister Begin to “use the war as an excuse to start now taking emergency measures that wouldn’t be accepted during peacetime.” 
Indirect costs of the Lebanon war, if they have been calculated, have not been publicized. In the instance of tourism, which brought in nearly $1 billion in 1981, it would be difficult to calculate which losses should be attributed to the war and which to the strike and lockout that shut down El Al, the national airlines. The government estimates that the total loss for this sector for the year will be $130 million, but the nation’s hotel association is predicting a loss of twice that. According to one account, Israel is now promoting “less traditional markets,” such as pilgrimages by South Korean Christians. 
Four years ago, Begin’s first treasury minister, Simcha Ehrlich, cited Israel’s “unique social structure” as a limit on the government’s capacity to put its economic house in order. “We live under intense psychological tension,” he said. “It means our ability to trim social services and employment is very limited.”  Today, in the aftermath of the Lebanon invasion, the government’s room for internal maneuver has decreased further. Depressed economic conditions in Israel’s traditional export markets will impede any resolution of the dilemma by the route of stimulating exports, although efforts to increase military exports in particular are likely. The one major variable, and by far the most crucial single element in Israel’s immediate economic future, is the level of US grants and loans. Israel is more dependent today on the indulgence of US taxpayers than at any point in its history. This factor, and no other, allows the Israeli government and its citizens to put off indefinitely the day of economic reckoning.
 Financial Times, Jnauary 18, 1983. According to this source, inflation “would have been much higher but for costly manipulations by the Treasury of the exchange rates and of subsidies to basic commodities in the last quarter of the year.”
 Israleft News Service 220, February 1, 1983.
 Jerusalem Post, March 16, 1983.
 Jerusalem Post, December 31, 1982.
 Los Angeles Times, January 27, 1983.
 Jerusalem Post International Edition, March 20-26, 1983.
 Jerusalem Post International Edition
 Israleft, February 1, 1983.
 Jerusalem Post, December 31, 1982.
 Jerusalem Post International Edition, February 6-12, 1983.
 Ibid. The Bank of Israel announced the figure of $20.1 billion at the end of October 1982. The higher estimate is from Israleft. See also Thomas Stauffer, “US Aid to Israel: The Vital Link,” Middle East Problem Paper 24 (Washington, DC: Middle East Institute, n.d.) for a most alarming account of Israel’s near bankruptcy.
 Stauffer, pp. 18-19.
 Jerusalem Post, March 15, 1983.
 Ann Crittenden, “Israel’s Economic Plight,” Foreign Affairs (Summer 1979), p. 1010.
 Stauffer, p. 16.
 Ibid., pp. 8-9.
 Ibid., pp. 9-10.
 Jerusalem Post, December 29, 1982.
 Wall Street Journal, July 8, 1982.
 Chicago Tribune, December 12, 1982.
 Crittenden, p. 1011.