June 1, 2010, Updated September 14, 2012

Israelis hope that membership in the prestigious OECD will improve the local business environment and make the country even more attractive to investors.



Photo by Avi Ohayon/ Flash90.
Shaking on it: Members of the Organization for Economic Cooperation and Development welcome Israel to the group in a ceremony in Paris. From Left,Estonia’s Prime Minister Andrus Ansip, Chile’s Finance Minister Felipe Larrain, Israel’s Prime Minister Benjamin Netanyahu, Italian Prime Minister Silvio Berlusconi, Slovenia’s Prime Minister Borut Pahor and Secretary General of Organization for Economic Co-Operation and Development (OECD) Angel Gurria.

Gaining entry into the 31-member Organization for Economic Cooperation and Development (OECD) club this month doesn’t mean that Israeli banks will suddenly have access to bags of money and loans from the World Bank. But it will mean better capital gains in the long-run for Israeli investors. And a financial open book policy will generate a better society for all the country’s citizens, according to Dr. Ohad Bar Efrat, an economist and head of International Affairs for the Bank of Israel.

Bar Efrat, who was a key player in applying to the forum, tells ISRAEL21c that Israel had been working toward participation since the early 1990s, when it finally received the invitation to join the prestigious group, whose members include the US, Canada and Switzerland.

Brokered by three parties, the Bank of Israel, the Ministry of Finance, and the Ministry of Foreign Affairs, Bar Efrat says, “Israel has participated in many committees over the years. It’s a very decentralized organization with more than 200 committees.”

Opening up its inner workings

To gain membership, Israel has had to open up its inner workings to the group, including reports on its macroecomics, capital flow issues, and financial markets, calling on Bank of Israel head Stanley Fischer to solve any problems along the way. Delegates from Israel have been sent to Europe and around the globe for meetings, and people from the OECD have spent time in Jerusalem looking over files, and checking off the boxes as Israel followed through the required steps.

“There were quite a few small steps that had to be taken for Israel to be in line with international standards,” says Bar Efrat, who was one of the representatives from the financial side ensuring that the codes were adhered to.

There are no hard and fast rules for joining the OECD – basically a government is required to present transparent financial and economic information to the club, making it easier and more secure for foreigners to invest in the local businesses and stock market.

Israel saw the advantages in upgrading its policymaking so it would be in line with that of other developed countries. “Some things we had to do were small and some were bigger. For example, there were principles we needed to accept like non-discrimination between foreign and local investors and companies,” says Bar Efrat, security considerations notwithstanding.

A yardstick for comparison with the developed world

“It doesn’t mean that everything is open to anybody. Israel is still allowed to regulate its policy based on security threats. Basically,” Bar Efrat explains, “If you have a foreign bank [come to Israel] it would be able to have the same playing field compared to a local bank.”

Another necessary step for Israel was to liberate its capital market. The country started on that well before the ascension process: “We unilaterally did these things before because Israel decided it would like to be a member of this important economic forum.

“It gives us a comparative anchor with other policy makers on what is working, what are the targets, and what is missing,” Bar Efrat points out.

For example, there are tests that the OECD countries supply to measure educational achievements. The results of such tests can show Israel’s education minister where improvements are needed, and help the ministry to set its goals. “We will have many more kinds of statistics, and Israel will be able to compare itself to other countries,” Bar Efrat asserts.

No handouts expected

Having data from other countries functions as a comparative framework that can help Israel to set goals and enact policy. According to Bar Efrat, “Some issues in social policy are important for economic growth.” For Israel, membership in the OECD should help to improve foreign aid; ensure that more Arab Israeli women find jobs; and even help the Orthodox Jewish male population to integrate into the workforce in a manner compatible with their religious values.

Bar Efrat is keen to correct a popular misconception: The OECD does not give out loans. It is not a financial organization, or a bank that gives out money, and what’s more, membership isn’t a guarantee of a thriving economy. Despite being an OECD member, Greece has just gone bankrupt. It’s what the country does with its membership and the accompanying opportunities – such as access to development funds – that counts. “They didn’t run responsible policy and for that they paid the price,” says Bar Efrat of Greece.

In the short term, Israel hopes to access some of the pension and monetary funds that only invest in OECD member countries. Being part of the OECD is like getting a really good report card at school. It reduces the risk premium of a country, so that if Israel borrows money, it will pay back interest at a lower rate.

Bar Efrat says that OECD membership will grant Israel better tools for policy making, and create a dialogue with government officials in the developed world.

A small open economy reliant on exports

Historically, Israel has attempted to follow sound economic policies to reduce government deficits, debt and inflation. Membership in the OECD should improve the business environment and make the country more attractive to investors.

“If we look at basic indicators, such as the output of capital, Israel is a developed country,” says Bar Efrat. “And if you look at its composition of production and trade, Israel is a very developed country. It has a small open economy that relies on exports as its engine to growth.

“A large part of its economy is high-tech and sophisticated goods. In terms of innovation Israel is a leading country. But this doesn’t mean that there aren’t social challenges where certain populations in Israel are excluded from the country’s economic life, a process that causes inequality to increase,” he says.

Bar Efrat believes that OECD membership is an economic solution that will balance the scales and improve Israeli society for all.

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Jason Harris

Jason Harris

Executive Director

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