JERUSALEM (Sep. 28)
The Cabinet decreed a 10 percent devaluation of the Pound last night and imposed a series of new taxes and levies during a six-hour special session devoted to the nation’s economic plight. The measures, intended to reduce Israel’s huge budget deficit and combat inflation by absorbing excess spending power, were announced before dawn while most of the nation was asleep and banks and shops were closed.
(See separate stories for consequences and reactions to devaluation.)
The Pound now stands at IL 7-$1 compared to the IL 6.36-$1 ratio of barely three weeks ago when the Pound was reduced in value by 1.9 percent. That devaluation, on Sept. 9, was ordered by a special ministerial committee created earlier this year with the authority to reduce the Pound at a rate of up to 2 percent every 30 days if necessary–the so-called “creeping devaluation.” But last night’s action was by the full Cabinet, indicating that Israel’s financial situation was serious enough to warrant more drastic measures.
Two ministers dissented vigorously. Minister-Without-Portfolio Gideon Hausner of the Independent Liberal Party, reportedly voted against the devaluation, and new taxes on grounds that the government had no right to squeeze the public without taking steps to prune its own spending. Police Minister Shlomo Hillel, who heads the ministerial committee on social improvement, criticized the devaluation-tax package for falling to compensate the poorer sections of the populace. It was not reported how Hillel voted.
CONSIDERABLE CRITICISM EXPRESSED
There was considerable criticism in the press and elsewhere over the almost clandestine manner in which the Cabinet acted in the dead of night causing a rude awakening for most Israelis this morning, But the ministers contended that major fiscal measures must be carried out swiftly and without forewarning to curb speculators and profiteers. They complained bitterly that the government’s intentions had leaked out last week and were the subject of intensive press and public speculation.
Although no one knew when the blow would fall, there was intensive activity on the local money markets–black and legitimate–before financial institutions closed down for the weekend. Heavy buying of dollars and dollar-linked bonds was reported.
The impact on consumers was eased somewhat when the Treasury, bowing to Histadrut pressure, reversed an earlier decision to eliminate price supports for basic commodities such as bread, milk and cooking oil. But many analysts claimed today that the government’s move would send the cost-of-living index up by as much as 5 percent. That was borne out by the sharp overnight bike in the prices of gasoline, cooking and heating gas, electricity and water. Motorists who anticipated a rise in fuel prices tanked up last night and most gasoline stations were sold out by midnight.
Hausner’s criticism was supported by newspaper editorials and columns of economic analysis in much of the press today, It was noted that the government took no steps to cut back its own expenditures beyond a vague decision to eliminate about 2000 jobs, Economic commentators noted that the new measures would bring less than IL 2 billion cash into the government’s coffers against a budget deficit in the neighborhood of IL 6 billion.