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Cabinet Approves Wage-price Freeze Package Aimed to Bring Down Inflation

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The Cabinet today approved a three-month wage-price freeze agreed to by the government, labor and management last Friday, though with some modifications of the original plan to meet objections by Histadrut and a reduction of the cost of credit to ease the burden on manufacturers.

The package deal, which the government has been trying to negotiate for weeks, is targeted on bringing down inflation, currently running at an annual rate of nearly 1,000 percent. But economists and industrialists warned over the weekend that this was only a first step to create “breathing space’ for the government to work out and apply far more stringent measures necessary to restore the country’s economic health.

The most urgent need, according to experts, is an additional $1 billion slash in government spending. That will mean a major slowdown in overall economic activity with a high probability of rising unemployment.

Under the package deal, initialed by representatives of labor and management Friday after lengthy talks at the Prime Minister’s Office, workers will forego one-third of their cost-of-living allowances in the first two months of the 90-day freeze period but no more than five percent of the increment payable at the end of the third month.

Histadrut stressed that the pact does not cancel existing wage agreements and that it would demand that employers honor them.

SCOPE OF THE DEAL

The scope of the price freeze threatened abreakdown of the deal even before the Cabinet could act. The Treasury’s original intention had been to exempt government subsidized items, particularly fuel, from the freeze and to allow the prices of many subsidized staples to rise moderately over the 90-day period.

Histadrut Secretary General Yisrael Kessar promptly accused the government of reneging on the deal since the agreement initialed by the parties applied the freeze to “all” items. “The word ‘all’ is not there by chance. If they had wanted to exclude certain prices or services they would have talked about them,” he said.

Government circles indicated the intention was to freeze the level of subsidies which vary according to Dollar rates but not the prices charged to consumers. Nevertheless, the Cabinet resolved today that the freeze would indeed apply to the prices of all government subsidized staples, unless labor and management agreed otherwise.

It was not immediately clear whether the freeze will include airline tickets or other transactions in which money is paid to parties abroad or interest on loans, including home mortgages.

PENALTY FOR PRICE GOUGING

The Ministry of Trade and Industry is planning to publish a price list covering several hundred commonly purchased household goods which are said to represent about three quarters of an average family’s outlay. Thousands of other less commonly purchased items are also frozen.

The penalty for price gouging was set at up to three years’ imprisonment and up to 2.5 million Shekels in fines. There will be some policing, especially on the most commonly purchased items. But consumers have been urged to see to it themselves that the freeze is observed and that gougers are identified so they can be brought to justice.

Manufacturers and employers will be helped to absorb cost-of-living increments without raising prices as in the past because the cost of credit has been reduced significantly. If bank loans cost 25 percent in October, they will cost about 15 percent in November, a reduction in line with the pared C.O.L. increments.

MEASURE TO SAVE HARD CURRENCY

In another measure aimed at saving hard currency, the government today declared it illegal to quote prices in Dollars as has been the practice up to now. The prices will remain at the levels they were on Friday, November 2, but will be quoted in Shekels at the rate of 527-$1.

The government stressed that the exchange rate will not be frozen but will be closely supervised by the Treasury to ensure that it rises only as much as the rate of inflation.

Another modification of the blanket freeze agreed to by the Cabinet today — at the insistence of Deputy Premier and Housing Minister David Levy — was to abandon a total suspension of public building. About two-thirds of the current projects will be carried out. Levy had warned that a total freeze on building would create wholesale unemployment. The Cabinet, however, decided to extend the present ban on new government contracts for another three months.

The Treasury has promised, meanwhile, to work out meaningful budget cuts with all ministries during the three month wage-price freeze and apply those cuts to the next budget.

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