Political Leaders Seeking to Ease Turmoil Created by Economic Plan
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Political Leaders Seeking to Ease Turmoil Created by Economic Plan

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Israel’s political leaders were seeking this week to end the turmoil generated by the government’s emergency economic program. But Histadrut is still seething with anger over measures it says will harm wage-earners.

Apart from its most ardent champions, Premier Shimon Peres and Finance Minister Yitzhak Modai, the emergency program drew its only unstinted praise from Washington where Secretary of State George Shultz, himself an economist, congratulated the government yesterday, praised Peres for his “courage and foresight” and pledged continued U.S. aid to help Israel on the way to economic health.

The most immediate problem facing Peres is the militancy of Histadrut, the powerful trade union federation where the Labor Party commands an overwhelming majority. Histadrut demonstrated its clout with a 24 hour (Tuesday/Wednesday) general strike which was observed, according to its estimates, by 90 percent of the workforce. More labor strife is threatened.


A truce seemed likely yesterday. The government, at the behest of Peres, agreed to postpone exercise of the emergency regulations — holdovers from the British Mandate regime — by which the economic program is to be implemented. Specifically, decrees freezing wages, reducing cost-of-living allowances and the dismissal of an undisclosed number of government employes would be delayed if Histadrut suspended all protest moves against the economic program.

At the same time, a Treasury team headed by the Director General of the Finance Ministry, Emanuel Sharon, met yesterday with a Histadrut delegation headed by Haim Habersfield, chairman of the trade union division. The purpose was to work out a compromise that would mollify labor and allow the government to proceed with its economic measures. But the two officials failed to reach an understanding and the situation deteriorated.

Histadrut, urged on by militant workers, threatened to resume labor sanctions starting next week unless the government satisfied demands for better compensation for wage-earners. Histadrut Secretary General Yisrael Kessar has threatened another general strike in 14 days if no agreement is reached.


The atmosphere was further soured today when Modai and Kessar, appearing live on a television panel show, “Moked”, ignored the media interlocutors and engaged in an angry verbal clash. The TV confrontation added a dramatic personal dimension to the situation. But it served to sum up the substantial differences between the government and Histadrut.

The government insists the erosion of real wages–which it hopes will be temporary — is an essential element to rehabilitate the economy without triggering mass unemployment that could have severe social and political consequences. Histadrut charges that the wage earners are being forced to bear the brunt of austerity while business suffers little in comparison.

The principle behind the economic program is an attempt to meet the demand often raised by the U.S. and by the International Monetary Fund (IMF) to end the linkage system. Hitherto, almost every component of the country’s economy–wages, prices, taxes — are linked to the consumer price index. That system has made it almost impossible to control the inflationary spiral.

The new program also abolishes “Patam”, an acronym for Dollar-linked saving accounts. The public may no longer deposit Shekels in Dollar-linked accounts for periods of less than one year. This will give the government its first opportunity to control bank accounts without being sucked into the inflationary spiral because of linkage commitments.


Modai expects inflation to soar in July and August — largely the result of ending government price support subsidies for basic commodities. He predicted that the cost-of-living index will go up by 25 percent this month and 13 percent next month. But by September, if all goes well, the inflation rate should be no more than three percent because of the three-month price freeze.

Modai sent a cable to Shultz today thanking him for American cooperation and updated him on the economic measures. He expressed hope that with the new plan in action, additional U.S. aid would be forthcoming.

Shultz was effusive in his congratulatory message to Peres yesterday for the “courage and foresight you have shown in moving boldly to address Israel’s serious economic problems … The new economic measures, if fully and vigorously implemented, represent an important step forward in Israel’s continuing efforts to stabilize its economy and restore growth … That is why we (the U.S.) stand ready to support Israel in this important undertaking with supplemental economic assistance which we expect soon will be approved by Congress and will be available to be used in the way that will be most helpful to Israel,” Shultz said.

Congress has before it an aid request from Israel of $1.5 billion which is approximately the amount the government says it has cut from the $23 billion national budget.

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