JERUSALEM (Dec. 28)
Finance Minister Shimon Peres has come under criticism, less than a week after he took office, for the decision-making process that led to the surprise 5 percent devaluation of the shekel Tuesday.
The devaluation, it turned out, was the idea of Michael Bruno, governor of the Bank of Israel.
It was approved by Peres with little consultation and over the fierce opposition of the director general of the Finance Ministry, Victor Medina.
Those details, which emerged Wednesday, contradicted initial reports that the devaluation was a first step by Peres to implement a broad new economic program.
Peres himself refused to comment on the move. He said testily that he could not be expected to explain everything he does “every moment of the day.”
The Bank of Israel, the country’s central bank, has long advocated a substantial devaluation of the shekel. With a new government in place, devaluation was expected momentarily, causing a rush to buy dollars before their price soared.
Bruno, reacting to reports that the public had purchased a record $150 million Tuesday morning, decided “on the spur of the moment” to try to end the panic buying.
He believed that with devaluation an accomplished fact, the demand for dollars would drop. He telephoned Peres proposing a 5 to 7 percent devaluation.
PUBLIC CONFIDENCE SHAKEN
Peres suggested he consult with Medina, a former senior official at the Bank of Israel. Medina turned out to be firmly against the devaluation and attempted to reach Peres to urge him to call it off.
Bruno again called Peres and got the green light from him to go ahead.
The story, as it emerged through several leaks to the media, has shaken public confidence in the government’s financial leadership.
The devaluation was criticized by the Histadrut labor federation, which said it would cause a surge in the consumer price index, and by Finance Ministry sources, who predicted a tax revenue shortfall of 400 million shekels.
The public’s hunger for dollars continued Wednesday, raising the strong possibility that another devaluation was imminent.
But the Tel Aviv Stock Market, which suffered a 10 percent loss after the devaluation was announced Tuesday, rallied on Wednesday.