Cohen-orgad to Present Government with an Austerity Economic Program

Finance Minister Yigal Cohen-Orgad is about to present the government with an austerity economic program which he says will weigh most heavily on the higher income brackets but protect the poor.

He announced some of his measures several days age as public opinion polis showed a dramatic lack of confidence in the government’s ability to manage the economy and figures just released disclosed a disastrous decline in the country’s foreign currency reserves.

Meanwhile, the price of bank shares on the stock exchange collapsed despite the hundreds of millions of Dollars poured in by the Treasury to prop them up. Business analysts are predicting an epidemic of bankruptcies and mass unemployment.

MOVE TO TRIM BUDGETS

In an effort to trim budgets, Cohen-Orgad met with Welfare Minister Aharon Uzzan and with Education Minister Zevulun Hammer. Uzzan apparently agreed to the Finance Minister’s plan to tax child allowances paid by the National Insurance Institute to families whose main breadwinner is in the 50 percent tax bracket.

At the meeting with Hammer, it was decided to levy an education tax on all families with school children, except those in the lower income brackets. Day care centers will also be affected. Financially better-off families will have to pay higher fees for the service.

Both Hammer and Uzzan are reportedly going along with spending cuts in their respective ministries. In the case of the Welfare Ministry, a saving of 700 million Shekels is expected.

Cohen-Orgad is also considering a plan to raise the top marginal tax rate from 60 to 70 percent for persons earning more that 250,000 Shekels a month. He said that would affect only one hundreth of the population.

A CRISIS OF CONFIDENCE

Academic economists by and large remain skeptics that these projected measures are sufficient to deal with the grave economic crisis. There is also a crisis of confidence. A public opinion poll by the Pori firm showed that 80 percent of Israelis believe the government is unable to control the economy. Only two percent thought the situation could be improved ultimately but that would depend on Cohen-Orgad’s performance.

The poll results were published following disclosure that Israel’s foreign currency reserves fell by $176 million in the month of October alone. From July to October, the drop was $420 million and reserves now stand well below the $3 billion “red line.”

Cohen-Orgad acted to curb that trend when the Treasury banned the free sale and purchase of foreign currency last week. Only bona fide travellers and businessmen are now permitted to purchase Dollars legally, but in relatively limited amounts. The black market is flourishing, however, and newspapers are publishing hints on how to circumvent the hastily issued regulations.

The Finance Minister also met with representatives of the Manufacturers Association several days ago. He told the industrialists that his immediate aim is to stem the stock market decline and his longer term goal is to narrow Israel’s vast balance of payments gap.

Independent economic observers are pointing out that the government has poured some $400 million into the stock market so far to bolster sagging bank shares. Last Wednesday, for example, $32 million was spent for that purpose according to official figures. But there are no signs that institutional buyers are prepared to purchase the government guaranteed shares which would allow the Treasury to end its costly subsidies.

Experts have estimated that at least $3 billion have been lost in the trading of bank shares and other securities on the stock exchange this past month. “This is money people thought they had, ” one analyst observed, “and now they don’t have it. It is like a massive hemorrhage. In the end the patient faints,” he said. He said the fainting would be a wave of bankruptcies of undercapitalized businesses across the entire spectrum of the economy.

Meanwhile, credit is becoming tighter than ever. The commercial banks announced last week that interest will be raised by 25 percent. This will mean rates of 192 percent charged on loans and authorized overdrafts. Since the figure is compounded quarterly, the rate of interest will soar close to 400 percent.