Arens Reports Shultz Warning That U.S. Aid Could Be Endangered if Israel Doesn’t Solve Economic Woes

Secretary of State George Shultz has warned the Israeli government that without a significant effort to solve the country’s economic problems, even at the cost of reduced living standards, U.S. aid to Israel could be endangered.

Defense Minister Moshe Arens, who met with Shultz in Washington last month, disclosed the American view when he briefed the Cabinet yesterday on his latest visit to the U.S. The Reagan Administration seems most concerned with Israel’s soaring inflation rate. Israel Radio reported that Washington has asked the government for a detailed plan of how it intends to restrain inflation.

In the Knesset today, MK Amnon Rubinstein of the opposition Shinui faction, called for an urgent debate over the American warnings and over the surprise resignations of two senior Treasury officials. Dr. Emanuel Sharon quit as Director General of the Finance Ministry yesterday. Shortly afterwards, Mordechai Frankl, senior economic advisor to the Ministry, stepped down amid charges that the government was abandoning its tough anti-inflation policies to gain the good will of voters in next month’s Knesset elections.

RESIGNATIONS SPARK UNEASE

Sharon was promptly replaced by Nissim Baruch, Premier Yitzhak Shamir’s economic advisor. But the two resignations exposed to the public a growing sense of unease among some ranking Treasury officials that the government is indulging in “election economics.” Some officials have charged that election campaign considerations prevailed over economic prudence when the government recently agreed to generous wage hikes for regular soldiers and policemen. They are expected to trigger new wage demands from other sectors.

The government meanwhile was faced with an ultimatum from Histadrut yesterday to resume negotiations for new overall wage agreements. The trade union federation said it would otherwise withdraw from the collective bargaining process and force the government to deal individually with each union representing its employes. Baruch, the new Director General of the Finance Ministry, is expected to sit down with Histadrut officials in the next few days.