The historical background of the crisis
The Kibbutz crisis during the 1980s was not the first financial crisis of the kibbutzim. It was preceded by many crises, which were followed by many debts settlements as well. The first debt settlement took place in 1924 and since then, debt settlements have been carried out about once a decade.
In the 1950s, following a deep crisis in the kibbutz movement, a new department was established in the Ministry of Agriculture whose main purpose was to make a recovery program in the kibbutzim. This department developed in 1958 a concentrated credit plan, according to which each kibbutz was assigned to one of three banks. The three banks were Bank Hapoalim, Bank Leumi and the Agriculture Bank. As part of this settlement many of the debts of each kibbutz were deleted, while the other part of the debt was re-distributed, and these banks were responsible for giving the kibbutzim the credit for their development.
During all those years, a recognition formed among the Israeli governments, the banks and the kibbutz movement, that the Israeli governments are supposed to guarantee the kibbutzim's debt, and that they would keep on making the payments for the kibbutzim's debt in one way or another. This realization crystallized during the period when the Israeli government completely controlled the capital market, and allocated credit to selected favored destinations - according to its own priorities.
The role of banks in the system was technical: they were used as a mean for the government to transfer credit, without actually carrying out financial risk management as needed in a free market system.
In addition to receiving credit from the banks, the kibbutzim also received additional credit from kibbutz movement funds and from regional and national shopping organizations. As part of this credit guarantees were made according to which each kibbutz had a guarantee to the debts of the kibbutz movement funds, and through this mechanism to all the kibbutzim's debt. These credit guarantees gave the financial systems in the kibbutzim and in the banks the false feeling that they would be capable of overcoming any financial crisis in the future.