The Mystery of 2006

The fact is, the economy is growing, unemployment is shrinking and the world sees us as a business opportunity. If not for that, we wouldn't be seeing a penny.

This year will go down as one of the Israeli economy's best, but also as a very mystifying one: How could the economy flourish, unemployment drop and inflation remain at 0 percent despite an unsuccessful war in Lebanon that cost a fortune, strategic threats from Iran and a volatile situation in the territories that could blow at any moment?

First, the figures. This year, Israel's economy grew by 4.8 percent - more than that of any country in the West. With this came the greatest social benefit of all: a decline in unemployment. The unemployment rate, which accounted for 10.7 percent of the workforce in 2003, slid to 8.5 percent this year. What this means is that 250,000 Israelis have found work over the past three years.

The number of job-seekers who showed up at employment bureaus in November was the smallest in the last three years. "There has been a consistent and significant drop in all unemployment indicators," Employment Service director general Esther Dominicini said this week.

A real miracle has taken place in Israel's balance of payments. For the first time in the history of the state, exports surpassed imports by $2.2 billion. According to the Bank of Israel's forecasts, by next year the figure will reach $5.3 billion.

So what is going on here? Have we turned into Switzerland? Not exactly. Our economy has become strong and stable, thanks to a revolution that has been going on for the past 21 years, since the adoption of a program to halt hyperinflation in 1985.

Since then, the Israeli government has enacted a series of changes and reforms that have strengthened the economy. Public expenditure, once 77 percent of the gross domestic product, was whittled down to 49 percent. This left more resources for the private sector, which began to flourish. The budget deficit diminished, which made it possible to lower interest rates, and this boosted investment and economic growth. Taxes were cut, which spurred economic activity. Opening the market to a free flow of goods, services and capital improved efficiency and output. Most of the government corporations were privatized, which improved the quality of management. As a result, today's economy can take blows without being knocked to the ground.

In 2003, Benjamin Netanyahu leapt into the ring, making his own contribution through a series of reforms that added fuel to the growth engine. With this energy boost, we reached the successful outcomes of 2006.

Still, one asks, why are foreign investors willing to plunk down their dollars in a risky place like this? Aren't they worried by the threats from Iran or the time bomb in the territories? From a distance, apparently, the picture is not as scary. They figure that even if Iran has the bomb, it won't use it because of how other countries, especially the United States, might react. The situation in the territories doesn't faze them, either. In any case, they tend to invest in high-tech companies where the "country factor" is no big deal. Within a couple of hours, they can move the whole business to Boston or California.

On top of that, there are foreign investors who are guided by their Jewish sentiments. These people see Israel as a kind of nest egg for a rainy day. Others regard us as an American satellite that every president in Washington will work hard to protect, and that is enough for them.

Whatever explanation you choose, money talks. The fact is, the economy is growing, unemployment is shrinking and the world sees us as a business opportunity. If not for that, we wouldn't be seeing a penny.