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Fiscal Austerity Recommended

Israel’s top economic leaders have recommended a program of fiscal austerity that includes paring the defense budget by IL 500 million. in order to salvage the nation from a rapidly worsening economic situation. The program was outlined yesterday at a meeting attended by Finance Minister Yehoshua Rabinowitz, Minister of Commerce and Industry Haim Barlev and Moshe Zanbar, Governor of the Bank of Israel.

They agreed that a substantial reduction in reduction in government services was needed. They called for three steps: a continued freeze on public construction and the construction of large apartments; an additional IL 1 billion cut in the national budget, inc including a half billion off the defense budget; and the issuance of short-term bonds to the public to soak up excess cash that is contributing to a disastrous inflationary spiral.

The economic leaders did not mention a possible devaluation of the Pound, despite rumors that such a move was inevitable. They made their recommendations against the background of reports that currency in circulation has increased by 12 percent during the last two months; that credit outstanding increased by IL 200 million during the first three weeks of Oct. despite credit restrictions; and that Israeli banks are again suffering a liquidity problem.

The Treasury has been pouring money into public institutions, such as municipalities which are short of cash and are over-spending their income. Widespread expectations that the Pound will be devalued has led to heavy withdrawals from banks to purchase foreign currency and to pre-pay debts in foreign currency. The result has been a drop In Israel’s foreign currency reserves.

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