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Cabinet Compromises on Defense Bud Get; Cuts It Only Il 7 Billion

The crisis over cuts in the defense budget was resolved to the apparent satisfaction of the defense establishment and the visible displeasure of Finance Minister Yigal Hurwitz at a marathon nine-hour special session of the Cabinet which ended at two o’clock this morning, local time.

The Cabinet agreed to slice IL 7 billion (about $150 million) from the Defense Ministry’s budget this year. Hurwitz had demanded on IL 15 billion ($320 million) cut which he insisted was the only way to halt the soaring inflation rate.

Chief of Staff Gen. Raphael Eitan, who attended the Cabinet session, told reporters on leaving that he was "satisfied" with the decision, although the Defense Ministry was insisting yesterday that it could not possibly absorb a cut in excess of IL 4 billion. Hurwitz was grim. He told reporters on emerging from the meeting that if the requisite cuts were not made in defense spending they would have to be made elsewhere.

Hurwitz’s demand for an IL 15 billion cut had been backed by the majority vote of a five-man committee which Premier Menachem Begin appointed Monday under the chairmanship of Agriculture Minister Ariel Sharon to arbitrate the Defense Ministry-Treasury dispute. His defeat raised speculation that he would resign and pull his three-man La-am faction out of Likud. Begin met with Hurwitz this afternoon and reportedly urged him not to take such a step.

Hurwitz made it clear later that he would not quit at this stage. A hard-liner on foreign policy and West Bank settlements, he told a meeting of his faction in Tel Aviv tonight that the present government was preferable to a return to Labor Party rule because its foreign policy positions were "exactly right." He said if the government demonstrated that it could manage the economy, he would continue to support it.

HURWITZ TO DEMAND CUTS ELSEWHERE

Informed sources said Hurwitz would demand at Sunday’s Cabinet meeting that IL 8 billion be cut from the budgets of other ministries to cover the monies that will remain in the hands of the Defense Ministry. The sources said Hurwitz would insist on an immediate decision and swift implementation of the cuts as a condition of his staying in the government.

Hurwitz was personally selected by Begin to head the Finance Ministry. He took office last fall after Begin engineered a Cabinet reshuffle which elevated then Finance Minister Simcha Ehrlich to Deputy Prime Minister, a portfolio with no real powers. Hurwitz, given the mandate to take drastic measures to salvage Israel’s rapidly deteriorating economy, made it clear from the start that the battle against inflation was his top priority.

The battle over the defense budget polarized Israel and split Begin’s coalition government. A number of coalition MKs announced this week that they would vote against an IL 15 billion cut in the Knesset. President Yitzhak Navon, who normally does not intervene publicly in political disputes, expressed concern this week that the proposed budget cuts would endanger Israel’s defense capabilities. He said he hoped they would not be approved in total.

MILITARY MADE EFFECTIVE ARGUMENT

The defense establishment argued effectively against the cuts demanded by the Treasury. Gen. Eitan and other senior officers warned that, among other things, a reduced military budget would limit training exercises, force soldiers in outlying areas to live in tents for the next year or two and probably reduce the overall size of the armed forces.

Defense Ministry officials warned that the redeployment of the armed forces from Sinai to a new, elaborate defense system in the Negev would be delayed, that production of Israel’s fighter plane, the Kfir, would be curtailed and its second generation prototype, the Lavie, might never get off the drawing boards. This would not only weaken the Air Farce and retard Israel’s progress toward military self-sufficiency but would affect Israel Aircraft Industries which is heavily dependent on foreign orders for the Kfir and Lavie.

Treasury officials and other financial authorities countered these arguments by contending that inflation, in the long run, was a greater menace to national security than military budget cuts. Arnon Gafni, Governor of the Bank of Israel, said Tuesday that if the IL 15 billion cut was approved it would have a favorable effect on inflation by reducing the influx of government money into the money market.

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