Monday, May 22, 2006

JERUSALEM — Front-page headlines tell of mortal threats all around — Iranian nuclear ambitions, Hamas’ rise to power, al Qaeda’s shift of attention to Israel — but the headlines on the business pages show Israel has never had it so good.

First came the report that Warren Buffett chose to make his first foreign investment, the third-largest deal he has made, in Iscar Metalworking Cos.

Most Israelis have never heard of the company, which Mr. Buffett has never visited.

“We are investing $4 billion in an amazing band of people from Israel,” he said.

Major American investment houses quickly took up this expression of confidence in Israeli business despite the country’s embattled image. Morgan Stanley issued a glowing review of the Israeli economy headlined “Israel: Almost Perfect.”

Apart from impressive economic statistics, the appraisal emphasized that the formation of a new government under Prime Minister Ehud Olmert promised stability and financial prudence. Soon afterward, Merrill Lynch raised its economic-growth forecast for Israel for the year to 4.5 percent, and Moody’s upgraded its rating of Israel from “stable” to “positive.”

The Israeli Central Bureau of Statistics report on the performance of the economy in the first quarter of the year showed that Israel’s gross domestic product (GDP) had risen at an annual rate of 6.6 percent, far higher than anyone had anticipated and higher than that of any Western country. The first-quarter figure was 4.8 percent in the United States and 2.5 percent in Europe.

“We have reason to strut a bit,” said Sever Plotzker, economics editor of the Yediot Ahronot newspaper. He noted that the business-sector GDP growth rate of 10.6 percent outpaced even China’s, as did the industrial sector’s 27 percent annualized growth. If the security situation remains calm and the global economy remains stable, he said, there is no reason why this level of growth would not continue for the rest of the year.

Principal credit for Israel’s economic surge is given to one-time Prime Minister Benjamin Netanyahu, who served as finance minister during much of Prime Minister Ariel Sharon’s term of office and instituted far-reaching reforms. Among other things, he lowered government expenditures and taxes and accelerated free-market trends in what once had been a largely socialist country.

The outbreak of the Palestinian uprising, or intifada, and the onset of suicide attacks sent the Israeli economy plummeting in 2000. As security forces gradually gained the upper hand, however, recovery began to take hold, particularly after Hamas declared a cease-fire more than a year ago.

The level of violence dropped appreciably and foreign investments poured into the country, sending the Israeli stock market to record highs. The country’s businessmen and high-tech innovators returned to the global marketplace as if an intifada had never occurred.

Even in normal economic cycles, Israel must cope with terrorism as well as international political confrontations that most nations are spared. But the Israelis have been able to demonstrate that they are likely to maintain a reasonable level of economic stability, come what may.

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