Finance Minister Yoram Aridor resigned from the Cabinet today in the midst of Israel’s worst economic crisis and furious controversy over a plan he had just announced that would link Israel’s faltering currency exclusively to the U.S. Dollar.
Aridor emerged from a specially convened Cabinet meeting minutes after it began at 6 p.m. local time to tell reporters that he had tendered his resignation. His term in office was the shortest on record. He left only three days after being sworn in as a member of Premier Yitzhak Shamir’s new government. He had served as Finance Minister in the previous government headed by Premier Menachem Begin.
Aridor defended his so-called “Dollarization” plan which was disclosed only this morning in Yediot Achronot and later confirmed by him in a noontime radio interview. He conceded, however, that under the present circumstances he could not contribute toward its implementation or to any of the economic reforms currently under consideration.
Aridor’s departure came as no surprise. His policies had been under severe criticism from Cabinet colleagues as well as the political opposition for some time. Members of Likud’s Liberal Party wing reportedly told Shamir that either Aridor went or they would leave his coalition.
LAST DESPERATE ATTEMPT
His “Dollarization” plan was seen by many as a last desperate attempt to remain in office. Its basic premise was that the U.S. Dollar or its Shekel equivalent would become the official currency of Israel. All transactions, salaries, prices and the national budget itself would be calculated in Dollar terms. As Aridor had explained it, this would do away with the prevailing index system that links wages to the cost-of-living index and would eliminate Israel’s triple digit inflation.
Initial reactions to the plan indicated that it has little chance of acceptance by the government or the Knesset. Informed sources said today that Shamir violently rejected the plan after reading about it in Yediot Achronot. The sources said Shamir knew nothing of the details of the proposal beforehand. He found them unacceptable on grounds that the “Dollarization” of Israel’s currency would gravely limit the country’s sovereign policy-making powers.
Aridor said, however, that he had devulged his plan to Shamir and to former Premier Menachem Begin but he did not say that either or both of them endorsed it. Sources here expressed doubt that Aridor had aired his ideas at meetings with top U.S. officials.
But Finance Ministry sources told Yediot Achronot that he had in fact discussed the plan with the American Administration during his recent visit to Washington and that their reactions had been favorable. Aridor cut short his visit because of the economic crisis but the Director General of the Finance Ministry Ezra Sadan, flew back to Washington today for further talks.
According to the Yediot Achronot account, the plan would involve close cooperation between the Bank of Israel and the U.S. Federal Reserve Bank. U.S. currency would be acceptable, along with the Dollar-based Shekel for all purchases and business transactions in Israel. Aridor was said to expect the Americans to cooperate on grounds that they want to see a strong Israeli economy.
But the Finance Minister and the sources who leaked his plan to Yediot Achronot admitted that the “Dollarization” scheme would cause a rise in unemployment, at least in the short-run. They predicted that the figure would go up to seven percent from the current 4-5 percent. Critics of the plan said unemployment would rise much higher.
It was noted here that such close currency relationships with the U.S. exist in only two other countries — Liberia and Panama — which historically have been interlocked with the U.S. economy. Histadrut Secretary General Yeruham Meshel said he didn’t object in principle if Israeli workers earned wages linked to the Dollar. “But our currency has dignity and national value,” he observed.
WIDESPREAD CRITICISM
The opposition Mapam Party charged that the plan exposed the Likud government’s total bankruptcy and would make Israel every more dependent upon the U.S. Economist Eitan Berglass, former chief of the Treasury’s budgets division, echoed the warning of high unemployment. The Hadash (Communist) Knesset faction proposed a motion of no confidence in the government.
But Shlomo Lorincz of Aguda Israel, who is chairman of the Knesset’s Finance Committee, suggested that the Aridor plan would give the public a sense of security. On the other hand, Labor MK Gad Yaacobi, chairman of the Knesset’s Economic Committee, called the plan a “caricature of an economic policy.”
Other critics from opposition and academic circles called the plan a “cosmetic” change of no intrinsic economic value. Critics within Shamir’s coalition denounced it on nationalistic grounds.
Energy Minister Yitzhak Modai and MK Geula Cohen of the rightwing Tehiya Party called it a shameful compromise of national pride and dignity. “It’s like changing the flag or the anthem, ” said Modai, a political foe of Aridor. “Israel should put Abraham Lincoln on its currency instead of Herzl,” Cohen suggested bitterly.
A THREE-STAGE PLAN
Aridor explained that the process he proposed would be the third stage of an overall economic reform which the Treasury has been preparing for the past six months. The first stage, implemented a day after the Shamir government took office, was the 23 percent devaluation of the Shekel and the removal or reduction of government subsidies for basic food products and fuel which sent prices soaring by an average of 50 percent.
The third stage calls for trimming $2 billion from the national budget. Aridor said if this is done, the budget would be balanced and the government would stop printing new money. He warned that if the first three stages are not implemented in toto, his “Dollarization” proposal would have little effect.
Political observers immediately pointed out that Aridor’s demand to pare the budget by $1 billion ran into heavy opposition from the coalition partners in the former government headed by Menachem Begin. They said there was little chance that the new coalition, composed of the same partners, would react differently to a $2 billion cut. Aridor refused to predict today whether the Cabinet would back his plan.
PUBLIC IS TOTALLY CONFUSED
Meanwhile, Israelis trying to cope with soaring prices, devalued currency and the collapse of bank shares, seemed to be totally confused by the latest proposal and were in a state of suspense over the government’s next moves. The directors of the Tel Aviv stock exchange, which suspended operations last Sunday, announced today that the exchange will not re-open this Sunday as originally planned.
The exchange was closed to halt trading in bank shares and other stocks until the economic situation stabilized. The government is considering a plan to shore up bank shares which plummeted in value last week because holders were cashing them in to buy Dollars and other foreign currency in anticipation of a weaker Shekel.
The new plan would link bank shares to the Dollar with government backing. It is intended to save tens of thousands of investors from heavy losses and avert a wave of bankruptcies by businesses that had used their bank holdings as collateral for loans.
The monthly cost-of-living index for September will be published at noon tomorrow. The stock exchange managers want to give investors time to study the figures. All buy or sell orders previously placed with brokers have been cancelled. Several brokerage houses closed and furloughed their employes until the stock exchange reopens.
Jewellers continued to report a brisk trade in gold and other jewellry by customers loaded with cash after selling their bank shares. With the Shekel now pegged at 82.74 to the Dollar, gold is preferred to Dollars.
The Archive of the Jewish Telegraphic Agency includes articles published from 1923 to 2008. Archive stories reflect the journalistic standards and practices of the time they were published.
