JERUSALEM (Aug. 22)
The devaluation of Israel’s pound by 20 percent, approved after midnight at an emergency session of Israel’s Cabinet, was reported at 1 a.m. this morning by Finance Minister Pinhas Sapir. The pound today is worth slightly less than 24 United States cents as against 28 cents yesterday. The new official exchange rate is 4.20 Israeli pounds to the dollar compared with the previous rate of 3.50 to the dollar. Sapir declared in his radio report to the nation that devaluation had become imperative because of President Nixon’s policies, generally described as a de factor dollar devaluation, and because of Israel’s heavy defense outlays. The first official devaluation made by any country since the new Nixon economic policies also was aimed at keeping the U.S. measures from widening an already massive trade deficit. Along with the devaluation, Sapir announced a series of sweeping economic controls designed to keep devaluation from ballooning Israel’s domestic prices. He said every price increase domestically could not be more than 20 percent of the foreign currency factor involved in its costs and that all price increases will have to be approved by a special board. He said legislation embodying those controls will be enacted at a special session of the Knesset tomorrow but that the regulations were in effect immediately under the Cabinet’s right to issue emergency regulations.
Sapir also listed a series of other regulations as part of the new economic program. He said no new taxes would be imposed and that planned tax reforms will be implemented on schedule. All existing stocks of products in Israel are to be sold at pre-devaluation prices or be subject to a tax equal to any price increase. He said bank credit was being frozen at present levels. Labor unions are being asked not to present any new wage demands before expiration of existing collective wage pacts next year. Later today, Sapir announced new rates for grants to low income families. Until now they have been 48 pounds a month for families whose total income did not exceed 490 pounds monthly. The rate of payments were on a progressively declining base until a family had, or reached, a monthly income of 586 pounds per month, which disqualified it for the monthly grants. All such payments have been increased by a flat boost of 30 pounds tax free. In reply to a question. Sapir said the Histadrut, which had asked for such action, had been informed of the new grant scales and had acknowledged them.
STEPS TAKEN TO HALT ILLEGAL PRICE INCREASES; BANKS, FINANCIAL FIRMS CLOSED
Sapir cited three basic causes of the new Israeli economic policy: the new United States 10 percent surcharge on imports; restrictions of the European Common Market customs union; and the fact that the Common Market gives duty rebates to 77 nations classified as developing, which excludes Israel.
In interviews with two Israeli newspapers, Yediot Achronot and Maariv, the Finance Minister said he expected an average price increase domestically of not more than five percent. He added that if wage demands were made and granted and prices went up “too much” as a result, the Government would impose higher taxes to offset such increases. The Government meanwhile set up a military-type network of field headquarter offices where offenders against the price freezes could be reported but-as one customer at Jerusalem’s Supersol supermarket said-Israeli citizens are like guerrillas as consumers and no army has ever been able to really cope with “small wars.” The Supersol management simply marked up all prices this morning. In response to customer complaints that the stores should sell their old stock at the old prices, the management reply was “we have no stock.” Every bank and money-lending firm was placed under police guard and no one was allowed to enter such enterprises.
Treasury officials, accompanied by bank officials, started visiting every financial institution to prepare lists of all assets in all currencies. Officials said it was hoped those procedures could be completed by tomorrow morning with banks then expected to reopen. In general, Israel’s public took the devaluation calmly although there was some grumbling. Sapir said last night that everyone would lose a little and that seemed to sum up the prevailing reaction. There was resistance in the Cabinet to the emergency measures. It was reported that Mapam Ministers required intensive persuasions to accept the program. Some economic experts contended that the devaluation was too little and too late. Tourists began enjoying the new rates which give them more Israeli pounds for their dollars. They made the exchanges at the only operating financial institutions-at Lydda Airport and Haifa port. Another group standing to gain from the devaluation is made up of Israelis receiving restitutions funds from West Germany. Meanwhile, the value of the Jordanian diner went up today from 9.80 to 12 Israeli pounds as a result of the devaluation and the increased demand for the dinar in the West Bank. Prices of all products there climbed steeply and food products disappeared from the markets. West Bank merchants are expecting an even sharper increase in prices.