Next Phase of Israel Economic Package Deal is Under Debate

The government, Histadrut and the Employers and Manufacturers Association were locked in a three-way debate today over the next economic package deal to follow the three-month wage-price freeze which expires in 10 days.

“Package B”, as the next phase is called, will be vital in dealing with Israel’s gravest economic crisis. But the three sides are reported to be far from agreement. A major concern is that the current freeze will be followed by soaring prices that will abolish the gains made to date in holding down inflation. The rate was only 3.7 percent in the second half of December.

Price increases are, in fact, considered unavoidable. The discussions between labor, management and the government revolve around which prices should be allowed to rise and by how much.

PLANS TO REDUCE THE BUDGET

Finance Minister Yitzhak Modai plans to reduce the budget by reducing the government’s price subsidies for basic products from their present 100-300 percent range to a 25-30 percent range. But reductions on that scale would send prices sky-rocketing again. The monthly cost-of-living index could be expected to rise into the 15-20 percent bracket, the main reason why the price freeze was instituted last November.

The government agreed yesterday to some limited price increases even before the current freeze expires. A 10 percent hike was allowed on tea, cigarettes and beer–items that have virtually disappeared from supermarket and grocery shelves–because the manufacturers halted production.

But that concession was rescinded today after the manufacturers refused to guarantee a steady supply of their products at a reasonable price. Only the Elite company, manufacturer of instant coffee, chocolates and other edibles promised to resume production if the 10 percent rise was ratified.

Manufacturers, such as the Dubek company, which has a monopoly of the domestic cigarette market, and others cited the 10 percent increase in fuel prices ordered by the government last week and the rising cost of imported raw materials as reasons why they stopped production.

While the price they were allowed to charge customers was pegged to a frozen Shekel value of 527 to $1, the Bank of Israel has continued to devalue the Shekel daily and the manufacturers must pay the full official rate for their imports.

Many manufacturers are complaining that the current price freeze took effect only a day or two before they had planned to raise prices, with the government’s authorization, which put them at a disadvantage from the outset.

It is expected here that price increases of between 5-10 percent will be allowed within the next 10 days before the freeze expires and that increases of 10-30 percent will be permitted at the beginning of a new package deal next month. Thereafter, monthly price hikes are anticipated with government approval, to be balanced by partial increases in the monthly cost-of-living increases paid wage-earners.

While the three parties continue to bargain, Israel’s health services and the army are beginning to suffer the constraints of the worsening economic situation. The Health Ministry agreed today that for economic reasons, government hospitals can go on a Sabbath schedule, operating with skeleton staffs, on a daily basis. The hospitals were also told to postpone non-emergency surgery and out-patient treatment. The reason is they are short of cash to pay their suppliers and are therefore short of medicines and food.

The army is also experiencing supply shortages because it is in arrears. Tnuva, the dairy marketing cooperative, has halted the sale of milk to the army because of outstanding bills amounting to $1 million.

Bezek, the government telephone corporation announced today that it would cut off non-essential phones used by the military because of non-payment of bills. The country’s major bakeries have stopped delivering bread to the army for the same reason.

There was also bad news for people planning to buy automobiles and other imported vehicles. For the purpose of customs duties, the Shekel was unfrozen from 527 to 665 to $1, the current Bank of Israel exchange rate. The price of new vehicles has risen by 16 percent and the tax on them now amounts to about two-thirds of their cost to the customer.