Israel's Independence Issue

The desert shall rejoice, and blossom as the rose. --Isaiah 35:1

Since winning its independence in 1948, the State of Israel has struggled to make its desertlike land blossom. But it has not been able to attract enough money from foreign investors, has had to rely largely on contributions by such philanthropic organizations as the United Jewish Appeal, to support its fast-growing population.

Last week the Israeli government decided to switch from charity to hardheaded finance. It filed a registration statement with SEC to sell a $500 million issue of "independence bonds,"* the largest foreign bond issue ever floated in the U.S. It was the start of a three-year plan of Prime Minister David Ben-Gurion, to raise $1.5 billion to make the new nation independent economically as well as politically.

After SEC gives the expected go-ahead, Israel will launch a huge bond drive throughout the U.S. in May. In a sense, Israel will be appealing to the heart and not the head: the bonds will be sold not through securities houses, but through Jewish community organizations.

Of the money raised, Israel will spend:

P: $36 million to build steel mills, an aluminum plant and machinery factories.

P: $30 million on the chemical industry.

P: $25 million for new textile plants.

P: $30 million for hotels and other facilities for tourists.

P: $130 million for agriculture, including $29 million for irrigation and $25 million to expand citrus crops, the country's most important export.

P: $60 million for hydroelectric plants.

Three-Year-Old Prodigy. Israel is already the most highly industrialized Middle Eastern nation: one-third of its Jewish working population is employed in industry (the same proportion as of U.S. industrial workers). During World War II, about 600 new plants were built to supply machine tools, munitions, precision instruments, etc. for the Allies. Recently, industrial growth has been still faster.

When the new government lessened the tax load on foreigners in March 1950, adventurous U.S. investors put $15 million into the new nation. Kaiser-Frazer Corp. is putting up a $2,500,000 auto plant in the Haifa Bay area; Philco Corp. has built a refrigerator plant near Tel Aviv; General Shoe Corp. and General Tire & Rubber Co. each has a factory.

Growing Pains. But Israel has grave economic problems. From 1919 to 1948 the number of Jews increased tenfold to 650,000, has nearly doubled in the last three years. The result is one of the world's worst housing shortages (an average of 2.7 persons per room), and stratospheric inflation, only recently halted by price controls, rationing and a rigid austerity. In the next three years, the government expects the population to jump another 50%. Nevertheless, with the new capital, Israel hopes to keep production in pace with still growing demand.

*Composed of 15-year (3 1/2%) bonds and twelve-year capital appreciation bonds (similar to U.S. savings bonds) whose interest will add 50% to the value by maturity. Thus, Israel will not have the burden of heavy yearly cash interest payments.

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