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Israeli Banking Crisis of 1983

he Israeli government owned between 87 percent and 97 percent of the shares in six banking institutions that included the four largest bank in the country.

Economic Events Preceding the Crisis

The Israeli economy was unstable in the 1970s and early-1980s. Government expenditures consumed a large proportion of the country's gross national product (GNP). By 1978, the government collected taxes that equaled nearly one-half of the total GNP. Even this high level of tax revenue was insufficient to fund the budget. Thus, the government, to finance the deficit, was forced to borrow from the Bank of Israel, the country's central bankĀ·in effect printing money, an inflationary activity.

Israel began experiencing double-digit inflation in 1973, and triple-digit inflation began in 1979. By 1980, the annual inflation rate was 131 percent; by 1982, 131.5 percent; and by 1983, 190.7 percent. By the July 1984, the annual inflation rate had risen to 445 percent. Relevant economic statistics for the 1970-1984 period are presented in Table, which may be found on the following page. As the data presented in the Table indicate, inflation rose steadily and enormously from 1971 through 1984. Real wage (adjusted for the effects of inflation) most often rose, at times dramatically so, although there were a few declines. Real wage rises in Israel, however, were virtually guaranteed by the indexation policy.

Selected Economic Statistics For Israel: 1970-1984

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Year Inflation Real Wage Change GNP Growth Unemployment

1971 12.0% 3.0% 11.0% 3.5%

1972 12.9% 1.0% 12.0% 2.8%

1973 20.0% 6.0% 4.0% 2.6%

1974 39.7% 2.5% 4.6% 3.0%

1975 39.3% - 2.0% 3.0% 3.1%

1976 31.3% 1.5% 1.2% 3.6%

1977 ...

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Israeli Banking Crisis of 1983. (1969, December 31). In LotsofEssays.com. Retrieved 02:25, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1699382.html