Israel’s economic establishment suffered two jolts this week: a sharp decline in the market rate of the shekel and the Knesset’s passage of a liberal housing loan bill the Treasury says the government cannot afford.
The shekel, which the government has gradually devalued by nearly 15 percent over the past two months, dropped by another 1.72 percent on the currency market Wednesday.
The bank rate is now 2.36 shekels to the dollar.
But there has been no new official devaluation and none is contemplated at this time, according to Finance Minister Yitzhak Moda’i and Professor Michael Bruno, governor of the Bank of Israel, the country’s central bank.
Moda’i warned speculators that anyone counting on a devaluation is throwing away his money.
Although the government establishes the official rate, the exchange rate at which the banks trade fluctuates daily in response to domestic and international developments.
Israeli industrialists have been pushing for a devalued shekel to stimulate exports. But Moda’i insists there is no need for further devaluation, since Israel’s hard currency reserves are holding steady at about $6 billion.
Meanwhile, the Histadrut labor federation and the Israeli Manufacturers Association, which represents the business sector, reached an impasse Tuesday night over proposals to reduce the cost-of-living allowance. But late reports said they are closer to agreement on a plan to revive the job market to absorb massive new immigration.
LOANS BILL COULD COST $2 BILLION
The desperate need for affordable housing for immigrants and other Israelis was behind the Knesset’s surprise passage Tuesday of a private member’s bill providing much easier terms on housing loans. It was introduced by Ya’acov Shamai, a Likud Knesset member who heads the party’s faction in Histadrut.
He saw to it that the gallery was filled with hundreds of rank-and-file members of the Likud Central Committee who support his bill.
The fear of reprisals in internal elections helped build a strong Likud majority for the measure, which passed with only nine dissenting coalition votes.
But Prime Minister Yitzhak Shamir was livid. “You have raped the coalition,” he shouted at Shamai.
Moda’i was even more upset. The new bill calls for government-subsidized mortgages of up to $67,000 at 4 percent and only 80 percent linked to the consumer price index.
According to Treasury officials, that could cost the state $2 billion that is not in the budget.
The Treasury promptly ordered the banks to freeze mortgage lending. But they were back in business Wednesday, though on the old terms.
The Finance Ministry, meanwhile, is considering a new bill that would nullify the one passed Tuesday.
And in another development, the Peace Now movement charged that the government somehow is never short of funds when it comes to easy loans for settlers in the administered territories.
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