In 1998 Israel celebrated fifty years of statehood. Looking back, we have much to be proud of. Once a small, local economy, based on agriculture, commerce and light industry, Israel now enters the post-industrial age with internationally competitive industries in key sectors, including communications, electronics, information technology, biochemistry and agritechnology.
Today, Israel's citizens enjoy a standard of living comparable to that of many West European countries. Through encouragement of capital investment, Israel has developed a thriving market economy, driven by the private sector and open to competition. Israel currently is home to between 2,000 to 3000 R&D companies, 1,000 of which are start-up companies.
Israel is implementing a responsible fiscal and monetary policy in order to ensure realization of its potential and achieve sustainable long-term economic growth. The government's fiscal policy brought the 1997 deficit down to 2.8 percent of the GDP according to our own expectations for that year. Our goal is to reduce the budget deficit to 1.5 percent by the year 2001, within the guidelines of the Maastricht Treaty. Monetary restraint in 1997 succeeded in reducing the rate of inflation to 7 percent, and was less than 5 percent during the first half of 1998.
These policies, combined with other steps, will promote competitiveness and increase efficiency, thus providing the means to further integrate Israel into the global economy and to achieve sustainable growth.
Israel is committed to structural reforms, including privatization and deregulation, leading ultimately to a liberal market economy. The government's privatization program is in full force: some $2.4 billion in assets were sold to the private sector in 1997, making it a landmark year for privatization. Foreign currency restrictions on both households and the business sector were recently lifted. This step constitutes the beginning of the end of foreign currency deregulation which began almost a decade ago.
Optimism regarding Israel's economic future seems to be shared by the investment community. Israel is recognized as an attractive venue for foreign investment, which has grown substantially in the 1990s, reaching $3.7 billion in 1997, 60 percent higher than in 1995.
The development of Israel's capital market is crucial to both the direction and scope of its economic future. Dynamic capital markets are more flexible and responsive to new economic opportunities. Israel's capital market continues to undergo significant changes on all levels of activity. Direct government intervention in the market has been significantly reduced; new markets in corporate bonds and derivatives have been initiated; the Tel Aviv Stock Exchange has introduced a computer-mediated continual trade system, as in many markets abroad; legislation and regulation of the securities market have been revamped contributing to the efficiency and integrity of the market.
Standing on the threshold of the new millennium, Israel has much to look forward to. Historical events have opened a window of opportunity for us and for our neighbors in the Middle East. Economic trends towards global production, free trade and trans-national investment have thrust the entire Mediterranean region into an era ripe with potential for sustainable growth. It is our hope that these developments will usher in a new era of prosperity and stability for the entire region.