In its first initiative after the elections to control the economic crisis, the Ministerial Economic Committee decided today to reduce the size of government contracts substantially for the next three months.
The Committee also decided on a freeze on the number of government workers. Finance Minister Yigal Cohen-Orgad originally wanted a total freeze on all new contracts, but agreed to leave a margin of 25 percent of permissable transactions, at the insistence of other ministers. All new contracts will have to be approved by the Finance Minister. The freeze does not include food, medicine and fuel. It covers all ministries, including defense.
Responding to the move, God Yaacobi, head of the Labor Alignment’s economic committee, said that a transition government did not have the mandate of the people to institute such a new economic program.
The government also faced internal criticism. Energy Minister Yitzhak Modai, a long-time critic of the government’s economic policy, charged that the decisions were only marginal relative to the massive economic problems in Israel.
‘ALARMING’ FIGURES ON CURRENCY RESERVES
The Treasury’s move came just as the Bank of Israel released “alarming” figures on Israel’s foreign currency reserves. The reserves dropped by $351 million last month, the steepest one-month decline in many years. Economic experts in Jerusalem said today that the real drop was even greater, since the government had taken out short-term loans to cover part of the deficit.
Israel’s foreign currency reserves stood today at $2.6 billion, far below what is considered by economists as the critical level. The government also poured a record amount of money — 95 billion Shekels — into the economy last month.
Dr. Moshe Mandelbaum, Bank of Israel governor, attached to the figures a special statement, warning that Israel was facing a grave economic situation. Mandelbaum said that the drop in the foreign currency reserves was a warning signal that drastic action must be taken promptly to improve Israel’s balance of payments, simultaneously with measures to curb the inflation.
The drop of foreign currency reserves began in February — $75 million. After a few months of stability, last June there was another drop of $49 million. The drop last month was significantly high — which made the Bank of Israel sound the alarm.
REASONS FOR THE DECLINE
Officials at the Treasury and the Bank of Israel gave the following reasons for the drop: Israeli businessmen rushed to pay back dollar loans earlier than scheduled for fear of a large scale Shekel devaluation; importers rushed their advance payments; massive purchases of foreign currency by individuals, also for fear of devaluation; and the payment of debts by the government to the U.S. government.
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