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Israel Business & Economy:
State of Israel Bonds

Business & Economy: Table of Contents | Economic Indicators | Israeli Industries

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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. Following the 1948 War of Independence, Israel was mired in a sever economic crisis and was in desperate need of an infusion of financial resources to help build, develop, strengthen or modernize nearly every sector of the economy.

The arrival of hundreds of thousands of new immigrants to Israel's shores in the first few years after its establishment compounded the economic crisis. With no impediments to immigration, Jews from Europe - including Holocaust survivors and internees from displaced persons camps - set sail for Israel, while Jews from the Middle East came to the Jewish state after being drive out from their homelands. Many immigrants were forced to live in primitive shelters, ma'abarot, and food was scarce and severely rationed.

In September 1950, Ben-Gurion convened an urgent meeting of American Jewish leaders at the King David Hotel in Jerusalem to discuss the viability of issuing Israel bonds. Among the early advocates of Israel bonds were former secretary treasurer Henry Morgenthau Jr., Rudolf 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 and subsequently traveling to other cities throughout the U.S. In 1951, the sole offering of Israel Bonds was the Independence Issue, paying 3.5 percent interest. First year purchases more than doubled Ben-Gurion's 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 Israel Bonds organization, with the sale of bonds becoming global in scope. In addition to the United States, Israel Bonds offices opened in Canada, Europe and South America.

Annual sales reached new levels, passing $200 million in 1967, $500 million in 1973, and eventually, more than $1 billion in 1991. As sales increased, so too did Israel Bonds' base of support, growing the the Diaspora Jewish community to other supporters of Israel as well, including state and municipal governments, labor unions, corporations and financial institutions. 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 1990's, 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.

In September 2004, the Bank of Israel completed a study assessing the history of Israel Bonds and its comprehensive report praised the organization 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."

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.

Sources: Israel Bonds; Encyclopaedia Judaica. © 2008 The Gale Group. All Rights Reserved.

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