In two days, we will mark the 70th anniversary of one David Ben-Gurion's most important economic initiatives: Israel Bonds.
When Israel was just starting out, it was in desperate need of foreign currency. The resources secured through donations from US Jewry were vital, but not enough, and American banks refused to extend loans to such a fragile economy. Ben-Gurion's idea was to issue bonds to be purchased by American Jews at higher interest rates they would receive from banks. Thus Israel could bring in the foreign currency it so needs, and the people who bought bonds could enjoy high interest if they took the risk (which happily never came to pass) that Israel would not be able to cash them out when the time came.
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Israel Bonds became a hit. For years, billions of dollars' worth were sold. Affluent Jews became closer to Israel, and our economic growth became a vested interest for them. The money they invested was put into development and used for projects such as the National Water Carrier, power stations, the Dead Sea Works, and other important initiatives.
The Israel Bonds organization itself is a large American company that pays generous American salaries, mostly to its president (a sinecure position for retired Israeli public officials). In the 1980s, after a radical economic plan saved the Israeli economy from disaster, it was clear that the organization had fulfilled its role, and should be closed.
On one hand, American aid was made permanent, but on the other, Israel could already secure foreign currency loans at normal interest rates and had no justification to pay the much higher interest to people who purchased bonds through the organization. It became clear to us that for some time, most of the bond holders were no longer Jews, but banks in the US and elsewhere, as well as large pension funds, who had opted for solid investments at a relatively high rate of interest.
While serving as deputy finance minister at the end of the 1980s, I studied the Israel Bond issue with the help of senior ministry officials. They were all convinced that it was madness to keep the bonds going and pay out millions of shekels of unnecessary interest every year from the state budget, when Israel could get the loans it needed without wasting so much money on an entity whose entire purpose was to persuade institutions to accept a higher-than-market-rate interest for our bonds.
I advocated to cancel Israel Bonds, but my colleagues at the Treasury warned me that the cabinet ministers and MKs would not give up on an organization that invited them and their partners to lecture in the US in luxury conditions. They were right. I remember a cabinet meeting in 1995 in which Shimon Peres spoke proudly about how the Bond had sent him to Switzerland, where he had managed to sell a few million dollars' worth of bonds. Then-Finance Minister Avraham "Beiga" Shochat, took his head in his hands and said, "Shimon, do you know how much that costs us?" Everyone smiled as if it were a good joke, but it wasn't funny. The ministers knew exactly what Shochat meant.
The 70th birthday of the Israel Bonds is a good time to put them out to pasture. We should thank the organization which did wonders did for Israel for over 30 years, but then became an economic burden. We should bid farewell to the devoted employees and find another sinecure for the next high-ranking bureaucrat than the presidency of an organization that no longer helps Israel as the country is scrolling through the budget, looking for line items to cancel.
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