Israel differs in its economic circumstances from most countries in the region.
- Its economic structure is the most akin to that of an industrial country. Moreover, a
distinguishing feature of its industrial sector is the preponderance of high-tech
industries.
- Its economy is highly integrated in the world economy. This integration has deepened in
recent years as a result of free-trade agreements with the United States and the EU. It is
presently engaged in a program of unilateral tariff reduction with "third" countries in the Far
East, Latin America, and Eastern Europe.
- Israel passed in 1992 a Domestic Deficit Reduction Law requiring the progressive
elimination of the budget deficit. In compliance with this law, and notwithstanding the
absorption of over 700,000 immigrants from the former Soviet Union since 1989, Israel's
overall budget deficit was reduced to 2 percent of GDP in 1994. This was done in the context
of significant tax reforms accompanied by financial sector liberalization.
- Since December 1991, Israel has followed a "diagonal" exchange rate policy in terms of
which the central rate of the currency is depreciated at a preannounced rate and a band of plus
or minus 7 percent is maintained around the central rate. This exchange rate system is
complemented by specific annual inflation targets. These policies have contributed to a
reduction in inflation from around 20 percent following the 1985 Stabilization Plan to its
present level of less than 10 percent.
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