JERUSALEM (Oct. 23)
Senior government officials were today presented with proposals aimed at easing Israel’s economic crunch just one day after Premier Shimon Peres opened the Knesset’s winter session with a call for “economic patriotism.”
Speaking before a packed but solemn chamber, Peres called on Israelis to “tighten the belts, to return to productive work and to buy products in Israel.” He hinted that the government would initiate within a few days “brave” decisions, but he failed to be more specific.
Peres explained that the formation of a national unity government was not a guarantee for an easy way out of the economic crisis. And his failure to announce any economic reforms was greeted with some disappointment by many who had anticipated concrete signals of an all-out attack against inflation.
But the Premier sought to reassure the Knesset members that once the government took the necessary economic measures, it would make sure that the weaker segments in the society would not be deprived, and that the stronger elements would not benefit.
PACKAGE DEAL WITH UNIONS, EMPLOYERS SOUGHT
Peres, meanwhile, along with other senior ministers met today for two-and-a-half hours to hear proposals for economic reform initiated by Treasury and Bank of Israel experts. It was decided after the session to negotiate an economic package deal with the Histadrut and the employers, which was scheduled to go into effect November 1.
The proposal, unlike the one rejected by the ministers, would be based on the Shekel, with the hope of slowing down the economy. The wage and price freeze would be carried out on the basis of a plan which was proposed by former Bank of Israel Governors, Arnon Gafni and Moshe Zanbar.
The alternative proposal which was less favored by the Treasury and was rejected today by the ministers, called for a dollar-linked package deal for a period of four months.
The plan accepted by the ministers stipulates that for the next few months, wage earners will receive only two-thirds of the increase in the consumer price index in a cost of living increment. Basic salaries, prices and taxes will remain frozen for that period. The deal is intended to be implemented on an experimental basis for the first six weeks after November 1.
Judging on the results of that period, the package deal — possible in a modified form — would be extended for a total of six months, in the hope that by then the economic situation would have stabilized. The final deal will have to be worked out in negotiations between the government, Histadrut and the employers.
An issue which was apparently not discussed at today’s session, although described as essential to any economic program, is a cut of at least $500 million in the government budget, even before the package deal goes into effect. In a television interview broadcast yesterday, a leading economics professor, Michael Bruno, warned that no package deal could succeed unless it also included drastic cuts in government spending. Bruno expressed confidence that if the necessary measures were taken, the country would get out of its economic crisis.
Zanbar, the former Bank of Israel Governor, estimated at today’s session that if the deal would work out, inflation would drop as soon as next month by 10 percent. But Treasary experts were skeptical of this calculation. They were quoted as saying that the cost of living index would increase next month by 20 percent.
Gad Yaccobi, Minister of Economic Planning, said at the session that, in his view, the present economic policy was not “daring” enough, and therefore would not be able to curb the spiraling inflation rate. At best, he said, the annual growth of inflation would be 400 percent instead of the now projected 800 to 1,000 percent.