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FPZ Update




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As many readers of the Quarterly know, especially those who have read the most recent IASPS Scorecard on the Israeli Economy: A Review of 1998, the Free Processing Zone (FPZ) initiative now being led by Israel Export Development Company (IEDC) President Larry Silverstein had finally won the full endorsement of the Netanyahu government only to be undone yet again with the advent of new elections. With Netanyahu's (and the Likud's) political demise, IEDC once again went into the wait-and-see mode. Having begun the project in 1992, and having endured four prime ministers, IEDC has learned that in Israel, public policy has little to do with who is in power and what laws are in place. The real equation is bureaucratic power vs. institutional forces for change.

IEDC is a British Virgin Island company specifically created by a group of successful, well-placed U.S. Jewish business and communal leaders to spearhead Israel's first FPZ. The FPZ project was developed as a result of IASPS Policy Studies No. 10, and seeks to establish a 2,500-dunam, high-tech information park in the Negev region isolated from Israel's oppressive tax burden and unruly and undisciplined bureaucracy.

The question IEDC asks now: Is Barak serious about a free market reform that will bring hundreds of millions of U.S. investment dollars to Israel, and create 20,000 new jobs and a wealth of opportunity for the often-neglected Negev region? Until now, Barak has been hesitant to join forces with those who would opt for economic freedom. The FPZ project is no exception.

On July 22, 1999, Silverstein wrote Barak a letter on behalf of the IEDC board of directors (which includes Robert Tishman, Sy Syms, Eugene Grant, David Yerushalmi, Bernie Groveman, David Messer, Neil Genshaft, and Jack Belz). The substantive portion of the letter is reproduced below.

Anonymous sources in the present government have informed the Quarterly that the last word from Prime Minister Barak on this subject indicated that he was reluctant to move against the bureaucratic and media forces currently aligned against the project. This is especially so since many of his biggest supporters are leading Israeli industrialists who live off the largesse of government handouts. The FPZ represents a direct threat to this powerful constituency, say the government sources.

Portion of a Letter from IEDC President Larry Silverstein to Prime Minister Ehud Barak, dated July 22, 1999:

"The Free Processing Zone initiative was launched in 1992, and with the full support of Yitzhak Rabin the Knesset unanimously passed the legislation authorizing the Zone in June of 1994. After the assassination, the bureaucrats succeeded in changing the law during the Peres administration, rendering it unworkable. Bibi Netanyahu who was supportive of the Zone gave Arik Sharon jurisdiction of the initiative, only to have his administration fall, and the rest is history.

"IEDC, the American group of investors, has spent $7 million and eight years in an effort to accomplish the Zone that would bring to Israel $250 million of capital to create and equip it. The Zone would generate 20,000 new hi-technology jobs in the Negev where unemployment is particularly high. All of this would be accomplished without any Israeli government investment, loans, grants or subsidies.

"The Directors of IEDC need to know whether or not you are prepared to fully support this initiative. If you are, IEDC will endeavor to accomplish it. If you are not, we will abandon the effort."