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Economists Wary of Election’s Economic Fallout

June 1, 1996

JERUSALEM (AP) _ The election victory of right-wing leader Benjamin Netanyahu has some economists and business leaders worried that Israel’s economic boom may go bust.

The meteoric growth of the Israeli economy _ which has expanded by one-third in the past four years _ is seen as inextricably linked to the Arab-Israeli peace process.

The increase has been driven largely by foreign investment, the ``peace dividend″ of growing regional stability, according to Hebrew University economist Efran Kleinman.

``Investors should be very much concerned. The peace process opened markets among people who preferred not to be seen with us before,″ Kleinman said. ``This may now be threatened.″

Israel stocks fell about 5 percent Thursday, the end of the trading week, when preliminary results indicated a Netanyahu victory.

``Most of the players on the market thought that Peres was going to win,″ said Zvi Hoffman, managing director of mutual funds at the Meitav investment firm. ``The market does not like uncertainty.″

Many business leaders supported Peres, driven by a combination of support for the peace process and fear that Likud economic policies would ``cater to the public in the short-run but create problems in the long-run,″ Kleinman said.

Other economists say there is no reason to worry.

``The peace process is not what really matters in terms of results. That’s just smoke and mirrors,″ says Zeev Golan, associate director of the Institute for Advanced Strategic and Political Studies.

``We have the best-educated underemployed work force in the world, and that makes us attractive,″ Golan said, referring to the more than 600,000 Jews from the former Soviet Union who have immigrated to Israel since 1989.

Although many Russian immigrants hold advanced degrees in science, medicine and engineering, few have found work in their chosen professions and continue to work in unskilled trades.

Most economists agree that Netanyahu has a tough task ahead of him.

Inflation is expected to reach 14 percent this year, well above the 3 percent to 4 percent of most industrialized nations. The Labor government’s much-touted plans to privatize the huge state-run sector seem stuck in neutral. And the tax burden tops a whopping 40 percent of the gross national product.

The overvalued shekel is also an issue, mainly because it encourages imports and undercuts exports, contributing to a record $10 billion trade deficit last year.

Netanyahu has said his government will quickly address the looming economic crisis by selling off government-owned land and businesses, cutting taxes, and reducing government bureaucracy.

The new government’s economic policy will depend to some degree on who is appointed finance minister, Kleinman said.

Top candidates for the job are Ariel Sharon, who held the defense and housing portfolios in the past, and Dan Meridor, a former justice minister and a Likud moderate.

A housing minister in the right-wing government of Yitzhak Shamir, Sharon was behind massive construction in Jewish settlements in the West Bank and Gaza Strip.

Known for his interventionist approach to governing, Sharon spent heavily on the settlements.

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