Israel’s largest bank, the Bank Leumi, warned in a special report today that trends “exerting powerful inflationary pressure” on Israel’s economy had accelerated in the first half of 1961 and were likely to continue to increase during the second half.
“In spite of substantial progress in the spheres of production, exports and foreign currency reserves, 1960 showed developments less favorable than 1959, due to the widening of the gap in the balance of payments on current account and a rise in the general level of prices,” the report said.
Stressing that this trend had continued at an accelerated pace into the first half of this year, the report stated: “Restitution transfers and other capital imports, especially direct investments, are increasing and credit to the public is growing. All are contributing to the expansion of the money supply and exerting powerful inflationary pressure.”
The report said that currently “prices and wages are rising and the deficit in the balance of trade also continues to rise.” It predicted that since 1961 was an election year, “there is little likelihood that basic changes in economic and financial policy will take priority to the formation of a new Government toward the end of the year.”
The bank emphasized that once a new Government was formed, “the authorities will have to face up to the urgent task of deciding on a policy to combat inflationary trends, raise the level of savings and improve the balance of trade.”
Listing details in support of the forecast and warning, the report said that while production in Israel increased at a satisfactory pace during 1960, “the long hoped-for monetary stability which was achieved in 1959 was endangered during the following year. The money supply and price level both rose at a rate faster than that of 1959, under the pressure of West German restitution transfers” to Israeli beneficiaries “and increased purchasing power of the public.”
The 1960 “monetary expansion” has reached the point of Jeopardizing Israel’s monetary stability, the report noted, citing the fact that the money supply rose in 1960 by 21 percent, compared with increases of 10 percent in 1959 and 14,5 percent in 1958. In all three years, the bank reported, the accumulation of foreign currency reserves and the expansion in credit to the public were the principal reasons for the expansion in the money supply.
GERMANY PAID $101,000,000 RESTITUTION TO INDIVIDUAL ISRAELIS IN 1960
Asserting that the single most important factor in the rise was the foreign currency reserve accumulation, the bank reported that personal restitution payments from West Germany alone “reached a total of some $101,000,000 in 1960.” A large share of this “was converted into local currency, causing a marked expansion of the money supply.”
Credit expansion to the Israeli public from banks in 1960 increased by 27 percent, “a rate which exceeded by far the rate of increase in production,” the bank noted. It attributed the sustained high level of demand for credit to “the continued rapid pace of expansion of industrial production and the increase in exports” during 1960.
The report said that the index of consumer prices rose to 105.2 in 1960, which was four percent higher than the figure at the end of 1959. What was especially noteworthy, the bank asserted, was that “all the price increases took place in the second half of 1960, while the first half of that year showed a continuation of the 1959 trend of stability.”
The price rise was attributed mainly to “a rise in demand resulting from a higher level of disposable income and an increased rate of restitution payments. In addition, prices were affected by the general rise in demand in money terms due to an expansion of the money supply which was not wholly offset by the increased supply of goods and services available from local production and imports.” Prices were also boosted by the imposition of new or additional Government taxes and duties on a number of products.
As in past years, the bank reported, an unbalanced budget was set by the Israel Government. For the financial year ending in March 1961, “the budget exceeded that of the previous year by some 18 percent.”
REVENUE FROM U.S. COUNTERPART FUNDS DECLINED BY $22,000,000 IN YEAR
“On the whole the 1960/61 estimates for the Israel development budget indicated a 25 percent increase in comparison with the figures of the previous year.” the report said.” This occurred in spite of the fact that the revenue from the United States counterpart funds declined by 40,000,000 Israel pounds (about $22,000,000) to a total of 100,000,000 pounds and that from the counterpart funds deriving from reparations payments” declined by another 5,000,000 pounds.
The bank said that the main sources to finance the development budget had been. expected to be the sale of debentures to Israeli investors but a very large proportion of investment funds went into the purchase of common stock.
The bank reported that unilateral transfers of foreign currency to Israel jumped nearly 20 per cent to $300,000,000 and that this increase was due mainly to “the net increment to restitution payments which reached the net figure of $98,000,000 in 1960.”
The bank added that this “stream of personal restitution payments from Germany was likely to continue for several years, since it includes both non-recurrent payments and pension which will continue to be paid for some years to come.” The report noted chat reparations payments from West Germany to the Israel Government, though they increased slightly during 1960 to $80,000,000, “are expected to contract drastically during the next few years and are due to cease in 1964 – 65.”
The Archive of the Jewish Telegraphic Agency includes articles published from 1923 to 2008. Archive stories reflect the journalistic standards and practices of the time they were published.
