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Israeli Money Men Split over How to Fight Inflation

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Israeli officials appeared at odds today over how to curb inflation, the country’s number one economic problem. Finance Minister Pinhas Sapir formally set up a new anti-inflation committee yesterday–the seventh this year–but skepticism was voiced in some circles as to whether it will be any more effective than the previous committees. The new body consists, as did the previous ones, of representatives of the government, labor and employers.

An angry dispute developed meanwhile between the Treasury and the Bank of Israel over allegations by the latter that the Treasury has fueled inflation by pouring huge amounts of currency into the local money market. The dispute reflects sharp personal differences between Sapir and Bank of Israel Governor Moshe Zanbar over anti-inflation measures.

The Bank of Israel has been pressing for higher interest rates to slow down inflation. Gen. Haim Bar Lev, the Minister of Commerce and Industry, is strongly opposed on grounds that lower rates would reduce investments and retard the country’s economic growth rate. Treasury officials on their part have dismissed as inconsequential a Bank of Israel recommendation to cut down public construction and the construction of luxury housing. The officials contend that these types of construction constitute only a small part of the overall building in the country.

RECESSION FEARED THIS YEAR

The Treasury has also rejected a tax increase for fear that it might lead to higher prices. No major steps are expected to reduce money in circulation before the national elections next Oct. But fears were expressed in some quarters that a recession would follow on the heels of the elections. The Gahal opposition faction in the Knesset has submitted a motion for urgent debate on the “serious recession threat.”

The Treasury denied yesterday a charge by the Bank of Israel that it had borrowed IL 670 million for local expenditures, thereby adding that sum to the inflationary tide. A senior Treasury official said only IL 70 million was added to the local currency in circulation and that the balance of the loan was used in foreign currency transactions. Dr. Eliezer Sheffer, director general of the Bank of Israel, claimed that the situation was just the opposite. According to Sheffer some IL 390 million was pumped into circulation at home.

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