BONDS, STATE OF ISRAEL

State of Israel Bonds refers both to securities issued by the government of Israel and to the commonly-used name of the company that is the exclusive underwriter for Israel bonds in the United States. The formal name of the company is the Development Corporation for Israel (dci).

The idea of floating an overseas bond issue was conceived by Prime Minister David *Ben-Gurion in 1950 and was endorsed by Finance Minister Eliezer *Kaplan and Labor Minister Golda *Meir. Israel was in desperate need of an infusion of financial resources, as the new nation was mired in a severe economic crisis precipitated by the 15-month War of Independence. In the aftermath of the war, a nation needed to be built. Every sector had to be developed, strengthened, or modernized.

Compounding the crisis was the arrival of hundreds of thousands of new immigrants. With no more impediments to immigration, the Jews of Europe, including Holocaust survivors and internees from *displaced persons camps, immediately set sail for Israel. Moreover, thousands of Jews from the Middle East, either expelled or rescued from their countries of origin, also poured into Israel. Due to the chronic lack of absorption funds, Israel was forced to house the ongoing wave of immigrants in primitive shelters called ma'abarot – in essence, refugee camps. Food was scarce and severely rationed.

In September 1950, Ben-Gurion convened an urgent meeting of American Jewish leaders at Jerusalem's King David Hotel to discuss the viability of issuing Israel bonds. Among the early advocates of Israel bonds were former secretary treasurer Henry *Morgenthau, Jr., Rudolf G. *Sonnenborn, Sam *Rothberg, Julian Venezky, and Henry *Montor.

The following spring, Ben-Gurion traveled to the United States to personally launch the sale of Israel bonds, beginning with a mass rally at New York's Madison Square Garden. Ben-Gurion subsequently traveled to other cities throughout the U.S. to encourage investment in Israel bonds. Although Ben-Gurion was hopeful that initial sales would reach $25 million, first year purchases were more than double his projections, topping $52 million.

Development funds generated through the sale of Israel bonds were quickly put to work. Towns were built for new immigrants. The National Water Carrier irrigated nearly half a million acres, allowing Israel to become agriculturally self-sufficient. The Dead Sea Works became Israel's first major industrial undertaking. Power plants helped alleviate Israel's lack of energy resources. New ports were built to receive vital imports and increase Israel's export potential. Transportation networks were constructed and expanded throughout the country.

As Israel's economy continued to grow, so too did the Bonds organization, with the sale of Israel bonds becoming global in scope. In addition to the United States, Israel Bonds offices opened in Canada, Europe, and Latin America.

Annual sales reached new levels, passing $200 million in 1967, $500 million in 1973, and eventually, more than $1 billion in 1991. Although these milestones were reached during times of crisis – the Six-Day War, the Yom Kippur War and the first Gulf War – in the 1990s and into the 21st century, yearly Israel bond sales were consistently at or above $1 billion.

Furthermore, as sales expanded, so too did the base of support. Although the majority of purchases continued to come from the Diaspora community, non-Jewish supporters of Israel, including states, municipalities, labor unions, corporations, and financial institutions all invested large sums in Israel bonds.

Israel bonds were increasingly perceived as worthy investments, as securities offered by State of Israel Bonds / Development Corporation became diverse and market-responsive. In 1951, the sole offering was the Independence Issue, paying 3½ percent interest. Over the years, choices evolved into more than half a dozen options, including fixed rate securities with interest determined by prevailing market rates, and variable rate securities linked to libor (London Inter-bank Offered Rate). A significant aspect of the investment appeal of Israel bonds was the fact that Israel had never defaulted on payment of principal or interest.

In the 1990s, the efforts of the Israel Bonds organization program took on an historic human dimension, with funds being utilized to assist in the resettlement of the more than one million immigrants from the former Soviet republics and Ethiopia. Included in the massive population influx were scientists, engineers, and scholars who helped take Israel into the next phase of its economic development, as the nation became a global high-tech powerhouse. With high-tech becoming the engine driving Israel's economy, capital from the sale of bonds helped build infrastructure to not only encourage new innovations but to export "made in Israel" products around the world.

In May of 2001, the Bonds program commemorated its 50^th anniversary at a gala event in New York. Hundreds of supporters from throughout the world – including Israeli statesman and former prime minister Shimon *Peres – celebrated the extraordinary achievements stemming from Ben-Gurion's vision of economic partnership with Israel.

In September 2004, the Bank of Israel – Israel's equivalent of the Federal Reserve – completed a study in which it assessed the history of the Israel Bonds organization. The comprehensive report praised Israel Bonds as "extremely important not just as a stable source for raising external capital but also for meeting other important goals (including) diversification of sources – particularly during times when the government of Israel finds it difficult to raise funds from external sources."

The report also commended the Israel Bonds message, which "emphasizes… the need to (invest in) the economic well-being and security of the State of Israel."

By the beginning of the 21st century, the Bonds organization had provided Israel with $25 billion in development capital. As Israel began an intensified period of infrastructure development that included enhanced transportation networks, port expansion, renewed industrial development, and continued cultivation of the Negev, the government again looked to Israel Bonds to help fund these ambitious new undertakings.

[James S. Galfund (2^nd ed.)]