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Shultz’s Letter to Peres Draws Fire from a Cabinet Minister

A Labor member of the unity Cabinet has reacted sharply to Secretary of State George Shultz’s letter to Premier Shimon Peres advising him that he could not agree to Israel’s request for more U.S. economic aid unless the government imposed drastic austerity measures to cure the country’s economic ills.

Gad Yaacobi, Minister of Economics and Planning, said in a speech to the Jerusalem Economic Club yesterday that “the unity government knew what it faced and what it needed to do and didn’t need lectures and new theories.”

“I don’t remember the United States upbraiding or reprimanding Israel during all the years when the policy which brought us to our present condition was being implemented here,” Yaacobi declared in an apparent reference to the policies of the Likud-led governments which held office from 1977 to 1984. He noted that the U.S. provided economic assistance to Egypt and other countries “and one did not hear of such American advice to them.”

There was considerable consternation in Treasury circles that the contents of Shultz’s letter to Peres was leaked to the local media. Peres confirmed yesterday that he had indeed received a letter from Shultz urging the Israeli government to produce a comprehensive economic recovery plan before the U.S. considered its request for increased economic aid.

SHULTZ’S LETTER IS BLUNTER THAN ORIGINALLY REPORTED

Follow-up reports in the media today claimed that Shultz’s letter had been even more blunt than originally reported. According to those reports, the Secretary of State informed Peres that the Israeli government must cut a further $1 billion-plus from its national budget, must end the system whereby wages are linked to the cost-of -living index and must end subsidies for uneconomical businesses and projects. There was no official confirmation of the specific contents of Shultz’s letter.

Israel is seeking $4.1 billion in U.S. military and economic aid for the fiscal year 1986 which begins next October 1, compared to the $2.6 billion, all in grants, which Israel will receive in fiscal 1985.

So far, except for a three month wage-price freeze instituted last month to curb runaway inflation the government has moved slowly toward economic reforms for fear of creating mass unemployment. Haaretz quoted an unnamed economist yesterday to the effect that if Shultz’s formula was adopted, tens of thousands of Israelis would be thrown out of work.

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