JERUSALEM (Aug. 16)
Israeli economists who have long demanded devaluation of the Israeli pound renewed that proposal today with added emphasis after consideration of President Nixon’s announcement of sweeping changes in United States wage, price and international trade policies. Professors Chaim Barkai and Michael Michaeli of the Hebrew University were among such experts queried by newsmen seeking information on possible effects of the new United States policy on Israel’s economy, particularly its international trade, Prof, Barkai, head of the university’s economics department, and Prof. Michaeli, social sciences dean and an expert on international fiscal policies, both said that the Israeli pound should have been devalued long ago. In concert with expert opinion elsewhere, the two scholars called Nixon’ announced measures a de facto devaluation of the dollar. This time, they said, Israel should not react only by adjustment to the new dollar-gold rate but instead should “take the opportunity for courageous and decisive action” by devaluation, which would have at least a temporary effect of lowering Israel’s prices on exported products relative to exports of other countries.
They cited as an example of merely adjusting. Israel’s act of devaluating of the pound three years ago to its present three-and-a-half to the dollar when it followed the pound sterling and other European currencies in a 12 percent devaluation. The two experts also urged imposition of wage and price controls, linked to the proposed devaluation, so that value of the devaluation would not be lost. Most observers here, however, expressed doubts that the government would follow the advice of the two experts. Finance Minister Pinhas Sapir, a strong foe of devaluation, is on record as believing that in an economy in which unions and trade groups are as strong as they are in Israel, devaluation would be quickly nullified in effect by wage and price inflation. But other experts pointed out that Israel’s money managers plan to keep the pound steady relative to the dollar, which means that the Israeli pound will in fact be devalued in relation to the West German mark and other strong or gold-based currencies. In an examination of the impact of one specific trade measure in the new Nixon program–the imposition of a 10 percent import surcharge–the experts indicated they expected little harm to Israel’s economy. Israel’s sales to the American market constitute 20 percent of its total annual exports. Diamonds, Israel’s number one export item, may be affected by the surcharge. Other Israeli exports to the United Sates include such specialty items as wines, bathing suits, fashions and textiles.
All of these, the authorities said, are purchased by Americans because of their origin or designs and are considered quality items. Short of a severe recession in the United States. Americans were expected to continue buying such Israeli specialty items even if they do cost more. A large part of the other 80 percent of Israel’s exports go to countries with strong currencies. If the Israeli pound continues to be pegged to the dollar, the exports will be comparatively cheaper to buy in those countries. On the other side of the trade picture, a weakening of the dollar should not affect Israel’s ability to buy products in other countries because much of Israel’s foreign currency reserves is in West German marks, one of the strongest free world currencies. However, the experts said, the cutting of United States foreign aid announced by Nixon may affect some of the grants and loans Israel has been expecting. But the way in which the foreign aid program will be cut has not yet been made clear and its impact on Israel accordingly cannot be measured. Moshe Rivlin, executive director of the Jewish Agency in Jerusalem told the Jewish Telegraphic Agency that he did not expect the new U.S. policy to bring a decrease in income from overseas contributors. He said that experience over the past years had proved that economic crises do not damage the commitment of the Jewish people to Israel’s cause. Officials in the Finance Ministry declined comment pending careful study of Nixon’s new policy.