This annual report to the Congress of the United States describes the economic situation in Israel that led to the 1985 Economic Stabilization Program, the reforms that have taken place since then and their impact, the current state of the Israeli economy, the current external debt situation, prospects for continued reforms and the need for continued economic assistance from the United States. The most salient points of the report are: The economic reform program has been successful in the The momentum in economic reforms has diminished, To capitalize on progress made to date, Israel will Israel's external debt has grown slowly and its debt burden has declined. Israel's debt service should remain manageable over the next three years. If Israel can successfully implement structural reforms, extraordinary foreign assistance should not be needed. As long as the country's security needs continue to demand a large share of the country's domestic resources as well as its foreign exchange, continued foreign assistance at current levels will be necessary. BACKGROUND AND RECENT ECONOMIC PERFORMANCE Background Israel experienced rapid economic growth until the early 1970s. Fueled by very high levels of investment, at times exceeding 30% of GDP, real GDP grew at an average rate of 9% p.a. between 1950 and 1972. At the same time, prices were relatively stable and private capital inflows easily covered balance of trade deficits. By the mid-1970s, Israel's economy turned sluggish. By the early 1980s, the economy was only growing at an annual rate of 1.48. Much of the slowdown was brought on by the rapid escalation in oil prices after 1973 and 1979. Also, the war of 1973 diverted a major share of national -2 resources to defense. The GOI, in trying to maintain civilian expenditures in the face of slower economic growth and greater security needs, financed growing budgetary deficits with private domestic savings. With the growth in budget deficits and concomitant money supply growth, inflation roared. Productive private sector investment declined in the face of uncertain real returns. Gross domestic investment declined from 31% of GDP in 1972 to only 18% in 1985. During this period of slow growth and rapid inflation, personal consumption was maintained through indexation of welfare payments, wages, interest income and taxation. High levels of personal and government civilian and military consumption were induced through large and growing budget deficits and other expansionary aggregate demand policies. Over the 1971-1984 period, labor demand was strong as reflected in the low rates of unemployment, between 2.5% and 5.0%, and real wages rose more rapidly than did labor productivity. The expansion in government spending and aggregate demand led to money creation, domestic borrowing and current account deficits. The current account deficits were financed by increased U.S. assistance flows, private donations, other transfers and by foreign borrowing (concessional and commercial). The trade deficit on the civilian goods and services account rose from $600 million in 1972 (8.6% of GDP) to $4 billion in 1983 (16.7% of GDP). External foreign debt (net of foreign assets of Israeli commercial banks) rose from $4 billion in 1972 to $23.7 billion at the end of 1984. To stem foreign exchange outflows, reduce inflationary pressures, restore growth and, in general, stabilize the economy, the coalition government (National Unity Government NUG) in 1984 devised a stabilization program. It included: - reduction in government expenditures; - increase in prices of subsidized goods and services; - imposition of foreign exchange and import restrictions; and - freezing or controlling many prices, wages and Initially the program had some positive impact. Inflation had slowed by the beginning of 1985 and the overall balance of payments moved into surplus. However, it soon became apparent that the underlying pressures, which had created the earlier economic instability, were still in place. The need for more comprehensive reform was recognized. In July of 1985, the NUG initiated a new Economic Stabilization Program (ESP), comprising: appears that people have been arrested who were not involved in the disturbances. For example, Amnesty International has received reports that soldiers have carried out mass arrests and have visited homes at night and arrested all teenagers present. Many detainees in all parts of the Occupied Territories have been held incommunicado. Some were denied access to lawyers or their families for up to two weeks. Defendants in the Occupied Territories have been denied basic rights in summary trials held in late December and January. Before lawyers decided to boycott the trials, defence lawyers complained that they were not given enough time to prepare their cases, were not given details of the charges before the court hearing, were not told of the date of the trial, and were not always allowed to see their clients beforehand. Trials in Gaza and the West Bank continued after the boycott by lawyers; defendants, including fourteen and fifteen-year-olds, were tried and convicted without being represented at all. During the past year Amnesty International has been concerned about an increasing number of reports of ill-treatment and torture of detainees in the Occupied Territories, to extract information or confessions or to harrass and intimidate. These allegations have been made against members of the Israeli Defence Force who carry out arrests and administer the detention centres of Al Fara'a and Dhahiriya in the West Bank and "Ansar 2′′ in Gaza, and against the General Security Service who conduct interrogations in regular prisons in the Occupied Territories and in the detention centres. Amnesty International has received numerous reports, including affidavits, that detainees have been beaten, kicked and punched on arrest and while being taken into custody. Interrogation methods described by former detainees have included hoodings, beatings all over the body including the head and genitals, falaga (beatings on the soles of the feet), being hung by a rope from the ceiling and swung from wall to wall, prolonged exposure to cold weather or air conditioning, solitary confinement for between two and 15 days, prolonged sleep deprivation, and verbal abuse and threats. In December two detainees in Al Fara'a alleged in affidavits that they had been subjected to electric shocks. Some official investigations have been carried out following complaints of illtreatment. For example, in November six soldiers were convicted of illtreating detainees in "Ansar 2" and an inquiry has been ordered into interrogation methods in Al Fara'a, although the findings of the investigation are not known. However, lawyers say that complaints of torture or ill-treatment submitted on behalf of their clients are often ignored this reportedly happened when lawyers drew the authorities' attention to the affidavits concerning the use of electric shocks - or not thoroughly investigated. Amnesty International has details of several cases where lawyers or their clients have been subjected to measures designed to intimidate them after they made complaints. Since 1986 Amnesty International has urged the authorities to carry out a thorough investigation of eleven sample cases where detailed complaints of illtreatment had been made, but to date Amnesty International has received only one reply from the authorities as to whether such investigations have been conducted. Where investigations have taken place, the lawyers have not been satisfied that they were thoroughly conducted. For many years Amnesty International has been concerned about the administrative detention or restriction to towns or villages of political activists in the Occupied Territories. They have included journalists, students, members of trade unions, women's and human rights organizations. Amnesty International has repeatedly expressed to the Israeli Government its concern that in general administrative detention orders and town arrest orders can be (and in Amnesty International's opinion have been) abused to detain people for the non-violent exercise of their right to freedom of opinion and expression, and that the judicial review at military court hearings is inadequate to prevent such abuse. Amnesty International has also expressed concern that those detained or restricted by such orders are routinely not given full and precise details of the reasons for the order nor the evidence on which the order is based, which makes it impossible to challenge the order effectively. Mr Chairman, in concluding this statement Amnesty International wishes to take the opportunity to call publicly on the Israeli authorities to take immediate action aimed at curbing human rights violations in the Occupied Territories. In particular, Amnesty International believes that the Israeli Government should: Conduct a thorough and impartial investigation into all killings by members of the Israeli armed forces in the Occupied Territories since 9 December 1987, and make public the results of the inquiry. Take steps to restrict the use of lethal force by Israeli soldiers in "Every effort should be made to exclude the use of firearms In general, firearms should not be used except when a suspected offender offers armed resistance or otherwise jeopardizes the lives of others and less extreme measures are not sufficient to restrain or apprehend the suspected offender." Take steps to prevent the use of unreasonable force in maintaining law and order. Amnesty International considers that the numerous reports of beatings often resulting in fractures and extensive bruising, describe law enforcement behaviour going well beyond what might be considered reasonable force even in response to stone throwing demonstrators. Article 3 of the Code of Conduct for Law Enforcement Officials states that force may be used "only when strictly necessary and for the extent required for the performance of their duty." It should certainly not be used against people who have been wounded or are in custody. Ensure that no one is arrested and detained arbitrarily, and that anyone arrested is informed of the reasons for the arrest. Accurate information concerning the whereabouts of detainees should be made available as soon as possible to relatives and lawyers. Guarantee that everyone should have adequate time and facilities for Prevent anyone from being administratively detained or restricted on |