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Measures Taken to Stabilize Israel’s Economy

The Treasury acted today to reduce government subsidies for basic food products, freeze civil service hirings and stem the flow of foreign currency abroad. The measures are aimed at stabilizing the economy which has been hit by runaway inflation, a widening balance of payments gap and a dangerous reduction of foreign currency reserves while the national deficit continues to mount.

One of the first results was a 14-19 percent hike in the price of basic foods. Food and commodity prices are expected to continue to rise as the government moves to end all subsidies, for a saving of some $600 million a year.

The hiring freeze took effect today and will remain in force until the end of March. Government and other public agencies will not take on new personnel in that period unless approved by a special appeals committee on an individual basis. The Health Ministry has already asked that hospitals be exempted from this ban.

The Bank of Israel, the country’s central bank, has ordered all commercial banks not to invest further in their overseas branches. The banks were instructed to transfer 98 percent of Dollar-linked savings to the central bank, leaving them only two percent for current activities. According to press reports, several large foreign banks have sent representatives to Israel to see if the local banking system is sound. They include the U.S. Federal Reserve Bank and the Bank of England. Israeli banks meanwhile have launched a public relations program to improve their image and credibility.

There were new reports today of drops in the sale of consumer goods which reflect a general tightening of credit. Several businesses have notified customers that credit previously extended for 60-120 days has been reduced to 40 days. Petroleum companies have reduced their credit period from 40 to 15 days.

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