Why Israeli Business Is So Fed Up

Amiram Sivan, the tough ceo of Bank Hapoalim, Israel's largest and most profitable, has noticed something troubling outside his office window: Right in the heart of Tel Aviv, Russian panhandlers are playing mournful tunes on battered accordions and violins. "Absorbing immigrants has been a real failure," says Sivan.

Indeed, Israel's poor record in creating jobs for newcomers from the former Soviet Union has made the ruling Likud Party's management of the economy an issue in the upcoming June 23 general election. Just a few months ago, the immigrants looked like a boon for Israel. They were expected to boost the labor force and offset the increase of Israel's Arab population. But with unemployment at 12%, nearly half of them have been unable to find work. News of poor job prospects have made other migrs delay travel plans. As a result, authorities predict that only 70,000 will come this year--a precipitous drop from last year's 200,000.

MAJOR SPURT. This disappointing performance is one reason Israeli business leaders are becoming more vocal in demanding that the government shift priorities to boost economic growth. One thing they want is to speed the shakeup of the state-dominated economy. Four years after a study by First Boston Corp. identified $5 billion worth of companies ripe for sell-off, only $500 million in state holdings has been sold.

Despite its litany of problems, business thinks the economy could grow more rapidly with new policies. Since the Soviet collapse and the gulf war, export markets are opening up to once-shunned Israel. This year, for example, Koor Industries Ltd., Israel's largest industrial company, set up offices in Beijing to support its growing China trade.

Inflation is slowly dropping, and the startup of peace talks has begun to attract new foreign investment, such as Intel Corp.'s $150 million expansion of its semiconductor plant in Jerusalem. The government has also cut defense spending to just 14% of gross domestic product, down from 40% in the mid-1970s. These changes have spurred a 30% rise in the Tel Aviv stock exchange this year.

CHAFING. Although the Likud Party has traditionally been seen as probusiness, most members of the Manufacturers' Assn., including Israel's top industrialists, are backing the Labor Party this campaign. Labor leader Yitzhak Rabin is winning the business vote by pledging to speed up peace talks with the Arabs. "To get growth, we really do need a peace process," says Dov Frohman, managing director of Intel Israel Inc.

Business executives now chafe at Prime Minister Yitzhak Shamir's channeling of hundreds of millions of dollars into settlements on the West Bank rather than more productive investment. Critics contend that the settlements not only divert funds from Israel proper but also have needlessly strained relations with Washington, depriving Israel of guarantees it requested on $10 billion in loans. With the guarantees, "we could have gotten loans for expanding industry throughout the country," says Gavriel Oron, managing director of Gali Industries Ltd., Israel's largest footwear manufacturer. Oron, a lifelong Likud supporter, recently switched to Labor.

Business will continue to push its concerns during the lengthy period of horse-trading on forming a new government that is likely to follow the election. Along with a speedup in privatization, it is also seeking lower corporate taxes and a boost in infrastructure spending. The question is whether whoever wins will have the sense to heed this advice.

Part 2

So strapped is Russia for rubles that one novel plan calls for a limited issue of gold coins. The new coins could be minted in denominations as high as 25,000 rubles--enough to buy an automobile or other big-ticket item, says Vladimir Tsapelik, an economist at the Institute of National Economy in Moscow.

One locality in Siberia is thinking of using the coins to pay the long-overdue wages of coal miners and thus buy labor peace. The coins also could become collector's items.

But gold coins can't possibly solve the problem of Russia's nationwide shortage of cash. Gold production in Russia is already falling, and the industry is in turmoil. Not only is there a shortage of skilled workers but several regional gold producers have broken away from Moscow's control and grabbed more resources for themselves.

So the government's gold coffers are already dangerously low. For now, Moscow is keeping the ruble printing presses running, and it is hoping that inflation doesn't soar out of sight. Meanwhile, another locality is considering yet another imaginative idea: minting coins from titanium, which is available in the scrap yards of its defense factories.

Part 3

It seemed as though Jan Timmer, ceo of Philips Electronics, had turned the company around. But suddenly, there is more bad news. Blaming a "deepening crisis" in the global consumer-electronics market, the company says its second-quarter earnings will be well below those of last year. Philips' stock price plunged on the news. Full-year results could also come in below 1991's profits of $680 million. Timmer is credited with pulling Philips into the black after 1990's $2.4 billion loss. The gains, however, came almost entirely from cost-cutting. Timmer needs hot new products to keep Philips' recovery from dying.

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