Israel Devalues Pound: Now Six Il to U.S. Dollar Instead of 4.20

The government initiated emergency economic measures late last night including devaluation of the Israel Pound by nearly 43 percent, an IL 1 billion cut in the national budget, sharp price hikes for oil and basic food commodities and a curb on imports including a six-month ban on the import of private care.

The devaluation of the IL is the first since Aug. 1971. As of this morning the U.S. dollar on which Israel’s currency is based is now worth IL 6 instead of IL 4.20. Viewed the other way. an IL is now worth about 16 1/2 cents instead of the previous 42 cents.

(See separate story for typical price hikes.)

Finance Minister Yehoshua Rabinowitz went on the radio at 2 a.m. local time Sunday to announce the emergency program and explain to the public that it was required to prevent a serious economic crisis and further depletion of the nation’s foreign currency reserves that have been shrinking at a dangerous rate. He said that unless the measures were taken, widespread unemployment would ensue.

He told Israelis that the country has been living beyond its means. “We should beware of the illusion that we can live the life of peace and bounty when the economic reality is of war and privation.” he said. “The choice facing us is between a severe economic crisis and an attempt to forestall it by painful decisions,” the Finance Minister declared.

UNIONS WILL DEMAND COL HIKES

The severe economic measures were long anticipated and came as no surprise although until last night government officials had insisted there were no plans at this time to devalue the Pound. Most economic observers agreed today that the test of the new economic policy will be how the government responds to the inevitable demand for cost-of-living allowance increases to compensate the public for soaring prices. Prospects for a stormy debate on that issue increased this morning.

Histadrut Secretary General Yeruham Meshel said he had “mixed feelings” about the measures and gave notice that Histadrut will demand a full COL payment in Jan. and additional compensation later in 1975 to ease the burden of sharp price increases. He said he understood that the price hikes were a direct result of devaluation but believed they were “too sharp.” He said Histadrut would demand that the government reexamine the increases. “We shall not hesitate to get into a confrontation with the government on this subject,” Meshel declared.

The IL 1 billion (about $232 million) budget cut means a sharp curtailment of public services but there was no indication today where the axe will fall. The intended effect of the measures is to soak up spendable income thereby stemming inflation that has been soaring since the Yom Kippur War. Predictably, the Israeli public has been on a buying spree in the past few weeks in anticipation of the new austerity measures. Housewives began hording foodstuffs against the expected price rise and such imported goods as television sets and washing machines were swept off the shelves.

The government’s program provides for compensation to low income families and families with many children through increases in the allowances paid by the National Insurance to the Welfare Ministry. The extent of the increases will be decided . in consultation with Histadrut and the National Insurance Institute, subject to approval by the Knesset.

GOVERNMENT HAD NO CHOICE

All Israeli wage-earners are scheduled to receive a 30 percent COL increase in Jan. but the demand now will be for higher increases. Some economists calculate that a family of four will have to add IL 500 a month to its budget to maintain its present living standard. A family that cannot raise its income would have to lower its living standards by about 25 percent, to the levels of 1972. A family with a car will have to add IL 187 a month to its budget Just to keep the vehicle running.

By and large, economists feel the government had no choice but to undertake the painful measures, Israel’s present foreign currency reserves are reportedly sufficient for the purchase of only two months’ supplies of essential imports. Next year’s adverse balance of trade is expected to reach a record $3.5 billion.

The Israel Radio conducted street-corner interviews this morning to find out what the public thought of the new measures. Some people felt they were unavoidable; others that they were too long overdue; and still others blamed the government for wasting millions and coming to the public for more sacrifices. The general feeling was, however, that the man-in-the-street is not ready to judge the new program until he feels the impact of the higher prices.