JERUSALEM (Nov. 20)
Finance Minister Pinhas Sapir assured the nation in a broadcast today that the Israel Government would act to ensure the stability of prices for basic foodstuffs despite the devaluation of the Israel pound in the wake of Britain’s devaluation yesterday.
The Israeli Government announced a 14.3 percent devaluation of the Israeli pound yesterday after similar action by the British Government. The Israeli pound previously had been valued at three to the dollar. The new rate will be 3.5 to the dollar. Messages exchanged yesterday between Leslie O’Brian, Governor of the Bank of England, and David Horowitz, Governor of the Bank of Israel, pledged mutual support and assistance in connection with the devaluation of the two currencies.
(In London, the Financial Times said today that the devaluation in Jerusalem would have a beneficial effect on investments from abroad. The devaluation, the paper said, would make transfer of funds to Israel more attractive and would end speculation that had been current that the Israeli Government would devalue its currency independently of other international developments.)
Mr. Sapir said that the prices of goods imported from hard currency countries would probably rise slightly. He added that Israeli customs duties would remain at present levels which, in effect, meant lowering of those rates. Goods from the pound sterling area will thus have an advantage over similar products from the United States or Central Europe, he explained.
Price rises abroad as compared to Israel will, at the worst, bring about small increases in the prices of these products in Israel, he told the radio audience, “On the other hand, the lowering of customs tariffs may cause lower prices for certain products imported from the sterling bloc.”
SAYS NEW INCENTIVE RATES SHOULD MAKE ISRAELI EXPORTS MORE COMPETITIVE
He said that the Government effort to keep domestic prices stable would include fuel and that therefore transportation and electricity charges would not increase. This was being done, he declared, so that the basic standard of living “will not be hurt.” He said Israel had to act to prevent the danger of shrinkage of exports stemming from the competition of sterling bloc countries whose export prices are now lower because of devaluation. He expressed confidence that Israel would pass through the new trial and continue to strengthen its economy.
Mr. Sapir later told the Knesset that incentives now paid to exporters would be cut less than the devaluation percentage so that the exporters would, in effect, be able to compete on better terms than before in overseas markets. Export industries such as diamonds and citrus, which did not receive the incentive allowances, should also be in a better competitive position with the new rate of exchange, he said.
The Tel Aviv Stock Exchange remained closed today. It will reopen for normal operations tomorrow after the situation is cleared up, officials said. Stock Exchange sources said that they anticipated increased investments by foreign investors because of the better exchange rate which they said should put “new blood” into the securities markets here. Banks resumed normal operations today for all currencies for which exchange rates had been fixed. Activity in other currencies was being undertaken on the responsibility of the bank.
No effects of the overnight shifts in currency relations were observable at Haifa port where ships departed with their scheduled passengers and the Lod Airport was as busy as ever. Israel took the news of the devaluation calmly. It was generally expected that the price of imported goods would rise less than the new exchange rate might warrant since customs duties have been left unchanged, or, in some cases, reduced. The controller of foreign exchange in the Finance Ministry estimated that average price increases would be no higher than one to two percent.
Leading figures in Israeli commerce and industry met with Minister of Commerce and Industry Zeev Sharef and agreed to use their influence to hold present price levels on stocks still in inventory. Mr. Sharef warned that the government would not hesitate to use all legal means at its disposal to resist unwarranted price increases.
Members of the Mapam Party, it was learned today, opposed devaluation when it was raised in the Cabinet, fearing its effect on salaried employees. Criticism of the measure came from Prof. Dan. Patinkin, leading Israeli economist, who said it was a “half-measure” and that the devaluation should have been greater.