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Economic Plan in Limbo

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The Cabinet reached no decision yesterday on Finance Minister Simcha Ehrlich’s proposed five-year economic program aimed at reducing inflation by drastic cuts in the national budget. The debate will continue when the Cabinet meets in regular session again next Sunday. Cabinet Secretary Arye Noor said after yesterday’s meeting that the ministers seemed generally supportive of Ehrlich’s plan. It calls for an immediate cut of IL 3.5 billion from the budget and possibly double that amount.

Other measures sought by Ehrlich include a freeze of the civil service work force, higher interest rates on development loans and periodic increases of the value-added tax (VAT). He said he hoped by these means to reduce the rate of inflation, currently running at 60 percent per annum, to less than 30 percent.

Ehrlich’s program encountered strong opposition from his fellow ministers when he first introduced it a week ago. But the announcement several days later that inflation rose by 8.7 percent in April, the largest increase since Nov, 1977, sent shock waves through the government. Skeptical ministers had second thoughts and the prevailing sentiment now is that something must be done to control run-away inflation. Defense Minister Ezer Weizman, whose attitude was negative, has indicated that he and the Army General Staff can “live” with proposed cuts in the defense budget.

One of Ehrlich’s aims in ### the budget is to provide funds for the redeployment of Israeli forces from Sinai to the Negev, over the next three years without creating additional inflationary pressures. The Likud government is very much aware of the mounting public dissatisfaction with its economic policies that is encouraging opposition attacks.

Three no-confidence motions aimed at the government’s handling of the economy have been filed in the Knesset by the Labor Alignment, the Shai faction and the Democratic Front (Communist). The Alignment will submit another no-confidence motion Wednesday over the government’s housing policy.

The deteriorating economic situation has created strains between the Herut and Liberal Party branches of Likud and within Liberal ranks where Ehrlich has been challenged by Energy Minister Yitzhak Modai Herut leaders have become increasingly critical of their Liberal partners where the economy is concerned.

The Liberals have pointedly criticized certain Herut ministers who favor budget cuts only if their own ministries are not affected. Supporters of Ehrlich said at a Liberal Party meeting in Tel Aviv last week that they would favor quitting Likud if Herut attempts to undermine the Finance Minister’s proposals.

Meanwhile, Bank of Israel Governor Arnon Gafny said last night that the government must prune IL 6-7 billion from the budget if it is to stem the tide of inflation and restore public confidence in the Pound.

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