Israeli Cabinet Approves Controversial Budget Slash

In its first concrete step of its economic agenda, Israel’s new government has approved close to a $1.6 billion cut in next year’s national budget.

One day before the budget decision, some 400,000 public employees staged a one- hour strike to protest the government’s plan to cut spending drastically and to privatize a number of state-owned companies.

Cabinet members who opposed the budget in Tuesday’s 12-5 vote — Foreign Minister David Levy and Defense Minister Yitzhak Mordechai were among them – – said their primary concerns were about slashes to defense and education and the cuts’ impact on the low-income sectors of the population.

The cut will help the government fight inflation, now running at about 15 percent a year. The stock market rallied in response to the news of the budget decision.

The vote represented a victory for Finance Minister Dan Meridor, who had the support of Prime Minister Benjamin Netanyahu and Jacob Frenkel, governor of the Bank of Israel.

However, the vote is only one battle in the budget war.

In August, Meridor will present a detailed budget to Cabinet members, but until then, no specific decisions have been made as to which ministries will have their budgets cut or how much those cuts will be.

The ministers are set to meet early next week to finalize the budget cuts as well as other details of the economic plan.

It is likely that a number of negative economic statistics released this week helped the budget proposal get through the Cabinet.

The Bank of Israel had announced that its monthly integrated index, which predicts the direction of the economy, slipped by seven-tenths of a percent.

This marked the first drop in the index in more than three years.

The Finance Ministry also plans to propose measures soon to lower the 1996 budget deficit.

The 1997 budget must be approved by the Knesset by the end of this year.

Histadrut trade union Chairman Amir Peretz, who called for Monday’s strike, vowed a long struggle against the government’s economic plan.

Netanyahu has pledged to privatize about a third of Israel’s state-owned companies during the next four years.

On Monday, services were suspended at hospitals and ports, and broadcasts ceased at state-run radio and television stations for an hour.

Post offices and other government businesses opened late as employees attended assemblies with representatives from the trade unions to protest privatization.

“All that moves is being privatized without examining whether it’s needed or not,” Haim Oron, treasurer of the Histadrut Trade Federation, told Israel Radio.

The Histadrut said Monday’s sanctions were a “warning” to the government not to take drastic economic measures.

Peretz and Netanyahu met Monday to discuss economic issues. The prime minister said he would consider the chairman’s request to form a socioeconomic council that would be headed by Peretz.

The two also agreed to meet again once details of the government’s economic program are worked out.