8 Percent Devaluation Ordered, but Rest of Peres Plan in Doubt

Finance Minister Shimon Peres faces a tough fight getting the Cabinet and the Knesset to approve his new economic program.

Peres presented his new economic program at Sunday’s Cabinet meeting. The ministers did not act on it. But certain aspects of the program will be implemented without delay.

They include an 8 percent devaluation of the shekel, effective Tuesday, on top of last week’s 5 percent devaluation. A shekel will be worth 55 cents, compared with 63 cents a week ago.

The main issue in Peres’ uphill fight is fairness. One big obstacle is to convince the Histadrut labor federation to accept what amounts to wage cuts in face of rising prices.

Another is to persuade his fellow ministers to accept substantial cuts in their ministerial budgets in order to lop I billion shekels from the overall budget.

Defense Minister Yitzhak Rabin made clear he will not countenance the proposed reductions in the defense budget. He called them “unthinkable” and warned of massive layoffs in the defense industries.

Education Minister Yitzhak Navon was equally adamant against the 200 million shekels his ministry is being asked to forego.

Most other ministers have balked as well. Only Housing Minister David Levy of Likud said he would agree to ministerial budget cuts if necessary, but he though the economic plan should be “more just and balanced.”

Peres conferred Monday with Histadrut Secretary-General Yisrael Kessar and other union bosses. Yitzhak Raz, head of the engineers union, told reporters afterward that the unions want to cooperate, but only if the economic burden is spread fairly.

SALARIES WILL BE ERODED

“The wage-earners will most definitely not be the only ones to pay the price,” Raz declared.

Addressing the Knesset plenum Monday, Peres said he was “neither deaf nor blind” to the hardships of wage-earners and lower-income groups.

Devaluation, in effect, means lower real wages. The government is seeking Histadrut’s agreement to forego full compensation for workers for the cheaper shekel.

At the same time, the economic program has already put into effect reduced subsidies for a wide range of goods and services. Their prices have shot up by an average of 20 percent, though fuel costs rose only 5 percent.

Inflation is expected to erode salaries by 7 percent in the months ahead.

Knesset member Yair Tsaban of Mapam, the United Workers Party, said the new plan puts the heaviest burden on lower-income groups and no burden on the rich. He warned that lowering wages would lower morale and productivity.

Levy of the fiscally conservative Likud bloc told Israel Radio on Monday that the country could not ignore its social commitments while trying to rebuild the economy. He said he would oppose “penalties against the public” in the form of education fees and payments for visits to doctors.

Rabin said in a radio interview that the defense budget has been pared back for three straight years and that further cuts would have to come at the expense of research and development projects that could be of critical importance in a year or two.

He also claimed the proposed cuts would mean 3,000 dismissals in the military industries and factory closures in development towns.

Rabin said the Treasury wants to cut 250 million to 300 million shekels from the defense budget. He estimated it would actually amount to a cut of up to 600 million shekels, because the army must absorb the costs of battling the Palestinian uprising in the West Bank and Gaza Strip, now in its 13th month with no sign of abating.