Cabinet Clashes on Economic Policy

Sparks flew at today’s Cabinet meeting as Labor and Likud ministers clashed over the direction of the country’s economic policy.

The vituperative exchanges reflected not only the widening gap between Labor and Likud whose marriage of convenience — the national unity coalition government — was precipitated by the economic crisis, but tension over external scrutiny of Israel’s economic affairs as well.

A top-level International Monetary Fund (IMF) team just ended a fact-finding visit and two prominent American economists just arrived to examine the state of Israel’s financial health in depth. According to observers, the report to be rendered by the IMF could significantly affect Israel’s credit rating abroad and the findings of the American experts could, presumably, influence the Reagan Administration’s final decision on Israel’s pending emergency economic aid request.

EXEMPTION PROPOSAL TRIGGERS CLASH

Today’s clash was triggered by a proposal by Laborite Gad Yaacobi, Minister of Economic Planning, to exempt newly established export-directed industries from income tax for a period of several years. Finance Minister Yitzhak Modai, a Likud Liberal and Minister of Commerce and Industry Ariel Sharon, of Likud’s Herut faction, protested vigorously that tax proposals were beyond Yaacobi’s authority to make.

Sharon accused the Laborite of interfering in his own ambit of responsibility. “Why don’t you let me get on with the work, “he demand. Yigal Hurwitz, of the small Ometz faction, a Minister-Without-Portfolio who once served as Finance Minister in a Likud government, sided with Yaacobi. He blasted his former party, declaring that “everyone recognizes” Likud was responsible for the current economic mess.

Premier Shimon Peres also sprang to Yaacobi’s defense. He said it was incredible that in face of the parlous state of the economy, Likud ministers were “not cooperating ” with their Labor colleagues. In the event, the Cabinet voted 10-7 to “study” Yaacobi’s proposal.

Peres reported on his talks with the IMF team before they left. According to officials here, the visit went “better than had been anticipated” and the IMF people seemed to feel Israel was moving in the right direction to cure its conomy. But it remains to be seen whether the IMF believes Israel is moving far enough or fast enough.

The visiting Americans, both leading economists, are Herbert Stein, who was chairman of the Presidents Council of Economic Advisors in the Nixon Administration and Stanley Fischer. They arrived here over the weekend to begin intensive talks with Israel’s top economic policymakers. Both men have been closely involved in U.S.- Israel talks on Israel’s economic needs over the past few months. Israel has asked the Reagan Administration for an additional $800 million in economic aid this year, above the $1.2 billion it has already received.