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Battle of the Budget

Israeli policymakers are locked in a battle of the budget. Finance Minister Yitzhak Modai is urging cuts totalling a half billion dollars in the 1986-87 budgets of the Defense, Education and Health Ministries. Premier Shimon Peres is adamantly opposed.

The budget for the next fiscal year must be submitted to the Cabinet soon. A series of meetings between Peres and Modai has failed to break the deadlock. Modai reportedly has warned that without the specific cuts, important goals of his economic austerity program will not be met on schedule.

After a late night meeting last Thursday, aides to Peres said the Premier would allow “no further blows at defense, education and health.” They noted that cuts in the defense budget inevitably resulted in lay-offs and closures throughout the economy because the defense establishment is a major contractor of a host of civilian industries.

There is a political element in the economic discussions. The three ministries most affected are headed by Laborites — Yitzhak Rabin, Defense; Yitzhak Navon, Education; and Mordachai Gur, Health. Modai is a Likud Liberal and there is suspicion in Labor circles that his demand for cuts is motivated at least partly by partisan political considerations.

Meanwhile, the government has relaxed its policy toward certain sectors of the economy that are in especially dire straits. The Cabinet last week approved a $90 million loan to farmers and agreed to make $50 million in government funds available to hardpressed local authorities. Development towns have been exempted from the blanket freeze on public building and investment.

Also under consideration is the creation of a $100 million loan fund to business firms facing serious but temporary economic problems. Hebrew University economist Michael Bruno, one of the authors of the government’s austerity program, said in a speech last week that while he opposed indiscriminate government bailouts of failing businesses, he did believe that certain companies which are fundamentally sound should be helped by the government through temporary difficulties brought about by the economic squeeze.

Among such firms hard hit of late are Elscint, the Haifa-based manufacturer of medical equipment, and Solel Boneh, Histadrut’s giant construction company.


Meanwhile, the Central Bureau of Statistics announced that Israel’s balance of trade gap in the last quarter was 27 percent smaller than in the same three month period last year. That good news was tempered by official concern over a recent rise in the import of consumer durables, including cars. They attribute it to the anticipation by dealers of a consumer buying spree fueled by the redemption by old-age pensioneers of their frozen bank shares.

Persons under 65 who held bank shares when the market collapsed in October, 1983, are now permitted to sell them. Other share-holders must wait five years. The government is seeking ways to soak up this suddenly available money.

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