Government spokesmen like to point to Israel's relatively high rate of economic growth over seven percent in 1995 accompanied by moderate inflation (8.1%) and a low rate of unemployment (6.3%).

But a closer look at the recently-issued Bank of Israel Annual Report for 1995 reveals that the government, understandably, tends to claim far more credit than is due. Far worse, it tends to ignore some crucial negative developments which cast doubt on a continuation of the high-level progress the economy has achieved over the past six or seven years.

Achieving a high rate of economic growth is usually a desirable goal, and Israel has been in the forefront of countries with favorable records in this area. But this strong uptrend began in 1990, under the previous government, not in 1993. In fact the average annual growth rate for 1993-1995 was 5.7%, compared with 6.4% in the previous three-year period. Unemployment rose in the early 1990s, in large measure because of the mass aliya from the former Soviet Union. The high level of economic growth since 1990 has created many more jobs, resulting in a steady drop in unemployment from a peak of 11.2% in 1992 to 6.3% in 1995. At the same time, there was a corresponding drop in the number of immigrants from an annual level of close to 200,000 in 1990 and 1991 to about 75,000 per year in 1992-1995.

As for inflation, the downtrend began in the mid- 1980s, mainly as a result of the economic reforms adopted at that time. The annual rate of inflation dropped sharply from well over 400% in 1985 to 20% in 1989, 12% in 1992, and 10% in 1995.

In short, when government leaders claim credit for achieving high levels of economic growth and low levels of unemployment and inflation, the record shows that this was largely a continuation of earlier trends.

The most serious failure of the past three years is starkly evident from external accounts. The import surplus rose very sharply from $ 3.8 billion in 1989 to $ 6.8b. in 1992, then skyrocketed to $ 11.1b. in 1996. This resulted in a rapidly expanding current account deficit. The current account balance went from a surplus of $ 154 million in 1990-1992 to a deficit of $ 4.1b in 1995. This was due to a huge increase in civilian imports.

Though exports were rising, imports rose far more rapidly. This was due in part to worsening terms of trade, i.e. the prices of goods which Israel exports rose less rapidly than the prices of imported goods. This current account deficit was financed, for the most part, by external borrowing, much of it through short-term loans.

Borrowing from abroad need not be negative. If the external loans finance the establishment, expansion, or modernization of productive enterprises, productive capacity may increase, and exports as well. This, in turn, creates the wherewithal to repay the loan, and still leaves us way ahead of the game, with expanded production, more jobs, and a healthier balance of payments.

But if the loans mainly finance increased imports of consumer goods, they can become very onerous.

By way of analogy, an individual may spend beyond his income through credit card loans, bank loans, and the like and appear well off. All an outsider can see is that he takes expensive vacations, buys a second car, etc. But within a few years the loans become due, and he may be left with a heavy burden of debt.

Israel's gross external debt rose from $ 31.5b. in 1989 to more than $ 44b. in 1995. Israel's net external debt actually fell by about $ 1b. between 1989 and 1992, to $ 15b., then rose sharply by $ 4b., to over $ 19b., in 1995.

Living standards, measured by inflation-adjusted private consumption per capita, rose nicely in 1990-1992 by about 2.5% a year. But in 1993-1995, all caution was thrown to the winds and private consumption rose by about 5% a year.

This rapid growth in private consumption lowered the rate of national savings, and made the economy more dependent on external sources to finance investment. Gross national savings as a ratio of income, which had risen from 18% in 1990 to 22% in 1992, fell to 18% in 1995.

The unusually rapid growth of imports and the yawning current account deficit are interrelated.

Much of the increase in imports was in consumer goods. But even the purchase of more locally-made consumer goods requires increased imports of capital goods, raw materials, spare parts, etc.

The import component of many Israeli-made products is about 40%. Buying blue-and-white may reduce total imports; it does not eliminate them.

A small industrializing country must put the emphasis on exports. In those Asian countries often referred to as tigers which have shown unusual economic success over the past 20 or 30 years, the emphasis has been on exports. The Bank of Israel report notes that Israel recently has been laggard in that regard.

The rapid growth in GDP has been led by rising consumption rather than by exports. But growth in consumption is soon constrained by balance of payments problems.

Borrowing to finance much of the current account deficit can only postpone the day of reckoning. Export- led growth is far more solidly based, and more likely to be long-lasting.

The Bank of Israel report concludes that the current path of economic development cannot persist. Sharp cutbacks in government spending are required to ensure longer-lasting high-level economic growth.

This might entail cutbacks in social services and welfare, worsening the already wide gap between the rich and the poor and cutbacks in subsidies.

It might also mean, one hopes, smaller handouts to the politically favored. But this painful and unpopular task would be better left to the next government.