Israel fears bloodshed will put a brake on economic growth

Published October 11th, 2000 - 02:00 GMT

The daily scenes of stone-throwing, gunbattles and bloodshed in the Palestinian territories could cost Israel dearly in financial terms, crimping economic growth and sending foreign investors ducking for cover. 

 

If it lasts a month, "the violence will cause a cut in growth rates to 4.2 percent from a previous forecast of five percent, and that translates into a lost of 700 million dollars for gross domestic product, assuming the situation does not deteriorate further," Israeli Manufacturers' Association president Oded Tira said. 

 

His fears are shared by Finance Minister Avraham Shohat, who warned: "The clashes will affect our economy if they are prolonged." 

 

The treasury is forecasting a growth rate of between 5.0 and 5.5 percent for 2001, a rare achievement on the domestic front for Prime Minister Ehud Barak, who is facing the possibility of an early election call by parliament next month. 

 

"Despite the problematic situation, it is possible to expect that a good stable government that can continue to march forward will be formed," Shohat said an interview with the Haaretz newspaper. 

 

But the deadly clashes that have spread through the West Bank and Gaza Strip, and often Israel itself, over the past 13 days could jeopardise that scenario. 

 

The Tel Aviv bourse, which was enjoying record highs just a few weeks ago, is feeling the pinch. 

 

The broad-based TA100 index dropped 5.9 percent on Tuesday after a four-day break, with the high-tech and telecommunications sector losing a hefty 10 percent. 

 

On foreign currency markets too, the shekel has taken a speculative hit after earlier testing new highs against the US dollar, and was trading on Tuesday at 4.093 to the dollar. 

 

The drop could force central bank governor David Klein to put off a further reduction in interest rates, the government's main tool for stimulating growth. 

 

The total closure of the West Bank and Gaza Strip imposed last Friday also has a major impact, leaving many of the 100,000 Palestinians who travel to jobs every day in Israel without work and affecting their employers, particularly restaurants and public works companies and other companies that rely on unskilled labour. 

 

The agriculture minister has called on the government to temporarily remove import duties on fruit and vegetables from Europe to compensate for a halt in supplies from the Palestinian territories. 

 

Israel's economic star, the high-tech sector, is unlikely to emerge unscathed. 

 

"Numerous foreigners are preferring to wait until the situation becomes clearer before taking a decision about their investments in Israel," said one executive with a venture-capital fund. 

 

High-tech exports, mainly electronic and computer goods, are forecast at seven billion dollars this year, or 50 percent of total sales abroad, according to the Israeli Industrial Association. 

 

The sector has enjoyed growth of between 15 to 20 percent since the start of this decade. 

 

"Scenes of a country running with blood and burning in flames could encourage more high-tech companies to move to the United States," the venture-capitalist said. 

 

Tourism is also suffering. The Haaretz newspaper said the number of tourist groups cancelling tours to the Holy Land for security reasons has multiplied in recent days. 

 

Tourism minister Amnon Lipkin-Shahak has ordered a freeze on promotional campaigns abroad, believing they will achieve nothing at the moment, although Israel insists it is still "open to tourists." – (AFP) 

 

© Agence France Presse 2000 

 

 

© 2000 Mena Report (www.menareport.com)

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