Israelis Tighten Belts, Keep Stiff Upper Lips

Jacob Alal, 47 and unemployed, sits in a cafe in Jerusalem nursing an orange juice. Eighteen months ago, shortly after the start of the Palestinian intifada, he lost his marketing job as the economy headed south and hasn’t been able to find anything since.

The Israeli makes regular trips to the government unemployment office, but, in what he says are a sign of the times, the only positions available are for security guards. The prospect of spending his day intercepting would-be suicide bombers in front of stores or restaurants isn’t terribly appealing.

Once a proud member of the middle class, Alal sees himself, his family and many around him slipping dangerously backward. “Everyone around me is in debt, and I’m living in poverty,” he said. “I’m reduced at my age to getting help from my parents. And no one in the government seems to have any new ideas on how to fix the economy.”

For Israelis, the debilitating injuries and loss of lives have taken a huge toll as the intifada heads into its third year. Less obvious, but widespread, are the economic costs for a society increasingly fearful and feeling under siege.

“It’s Not as Bad as It Looks--It’s Worse,” read a front-page headline for a story on joblessness in Israel’s Haaretz newspaper.

Despite mounting worries, however, even Israelis pushed to the brink of economic desperation haven’t spoken out.

“It’s seen as unpatriotic to criticize government spending priorities these days,” said Eli Shoval, a 45-year-old who lost his film industry job after security-conscious Israelis stopped going to theaters. “I’d demonstrate, but everyone’s afraid of getting together in large groups. And who knows if the police would bring out water cannons? People are just worn down.”

The economy has been dealt a triple blow, because the violence has coincided with a global downturn and high-tech meltdown. Industries such as tourism and construction are weathering some of the worst days in memory.

More broadly, nagging security fears are scaring away foreign and domestic investors, overseas business partners, sports teams, even arts groups, adding to the country’s sense of isolation.

“Many attorneys have to fly to Cyprus now just to have a meeting,” said Carmit Bar-On, a lawyer with Yehuda Raveh & Co. “It’s drastic.”

The numbers fill out the economic picture. Per capita gross domestic product, a measure of economic growth, shrank 3.2% last year and is slated to contract 3% more this year, unprecedented slippage in the nation’s history. Unemployment rests stubbornly above 10%, exports are down 11.7%, the fiscal deficit is widening, and annual inflation is pegged at about 8%. “We’ve paid a high cost in blood and in our pocketbooks,” Alal said.

But in a classic case of rallying round the flag, Israelis voice greater support for personal sacrifice than they did a year ago, even as their personal fortunes have deteriorated, according to a poll released last month by the Jaffee Center for Strategic Studies in Tel Aviv. The survey found that 47% were willing to shoulder higher taxes for defense spending, up 10 percentage points.

That leaves defense spending nearly sacred in looming budget battles, a position it has enjoyed for most of Israel’s relatively short history.

“Even though we’re in a severe economic crisis by all accounts, ultimately the military will get what they want,” said Stewart Cohen, policy studies professor at Tel Aviv’s Bar Ilan University. “There’s always a lot of moaning and groaning along the way, but they’ll get it.”

For most Israelis, there’s little guns-versus-butter debate, experts say, at least publicly. Rather, it tends to be a butter-versus-butter showdown, as domestic constituencies and pro-welfare lawmakers squabble over what’s left of the pie.

Prime Minister Ariel Sharon wants the remaining slice to be as small as possible--with the exception of funding for settlements. The former general threatened this month to call early elections unless lawmakers agree to across-the-board cuts affecting unemployment insurance, medical care, education and other social welfare programs.

It’s a high-stakes game, however. “Sharon knows he’s vulnerable on the economy,” said Joseph Alpher, a political analyst. “His popularity is dropping”--by 15 percentage points in the last two months, according to a newspaper poll.

One doesn’t have to go far to see why people are worried.

On Jerusalem’s Jaffa Street, Sbarro continues to dish out pizzas and spaghetti a year after a high-profile suicide bombing killed 16, including the bomber, and wounded 140. But a growing number of nearby cafes and shops are out of business as people increasingly shun the downtown area. As the economic pain has intensified, landlords are reducing rents or, in a few cases, waiving them altogether until tenants can get back on their feet.

“You have to be optimistic to continue,” said Judith Hervitz, owner of Pupi Gifts, a small knickknack shop on Hillel Street off Jaffa that has seen business drop 40%. “We have no employees, and our rent was cut nearly in half, so we’re better off than some. But people just aren’t out shopping. They’re just too afraid.”

Israel could benefit from at least a small tail wind next year if the global economy picks up, analysts say. But few expect the high-tech market to recover any time soon, while the Israeli-Palestinian security situation is anyone’s guess.

A modest silver lining on the economic front, said Augusto Lopez-Claros, a London-based senior economist with Lehman Bros., is that vulnerable Israeli industries such as tourism and construction have probably seen the worst of it.

“They may not recover soon,” he said, “but they won’t collapse further, either.”

That’s small consolation to many on the front lines, however. Furthermore, even if the fighting and violence were to end tomorrow, it would take about nine months before investors edged back in, bringing jobs and new ventures, economists say.

Jeff Gafni, an independent contractor, demolitions expert and reserve paratrooper, says he doesn’t remember things being this bad for this long during his 53 years of living in Israel.

His business has fallen off by 70%, and fellow contractors who once built entire condominiums now hustle for small jobs to feed their families. Palestinian workers can’t enter Israel given the travel restrictions, wiping out 80% of the industry’s work force. And West Bank quarries aren’t able to deliver stone because their trucks can’t make it through checkpoints; nor would the Israeli army let quarry workers use dynamite anyway to dislodge the rock.

Still, Gafni believes that it’s a price ultimately well worth paying. “Israel could some day be a Garden of Eden,” he said. “With all the dangers and hazards, you still get up in the morning and feel if you weren’t here you’d be missing something.”