The Bank of Israel - Vol. 1

By Haim Barkai; Nissan Liviatan | Go to book overview

3
Groping for and the Emergence of
Monetary Policy, 1954–66

GROWTH AND PRICES

The emergence of the Bank of Israel and its consolidation as an important player in governing the country and, in particular, its economy occurred at an opportune time in terms of the major economic aggregates. The success of the 1952 New Economic Policy (NEP) was evident by the end of its first year, even though its last phases of implementation entailed a further stepwise devaluation of the currency through 1954. The 20% leap in the GNP growth rate in 1954 relative to 1953, although partly reflecting a rebound after the stalling of growth in the two previous years, was a clear omen. Double-digit annual growth continued in 1955 and 1956 as well (table 3.1), even though the country experienced severe political strain during these years and followed a military collision course leading to the Sinai Campaign (Operation Kadesh) in November-December 1956. This growth pattern, at annual rates of about 10% in GNP and resources available to the economy (gross product and the import surplus), would remain the order of the day until the middle of 1965.

If a cyclical pattern in the movement of real aggregates could be discerned during this time, it did so only toward the very end, in the last two quarters of 1965, in terms of the rate of GNP and employment growth (figures 3.1 and 3.2). It became a headline phenomenon in 1966 when growth slowed abruptly from the 9%-10% rates experienced for more than a decade to only 1%, meaning a decline in per capita GNP that year. By 1966, however, Israel had an altogether different economy than it had had in 1954. GNP was almost three times higher and per capita product had increased by 60%, even though the population had grown by 50% during the interval.

-70-

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