Israeli Government Considers Additional Cut in 1997 Budget

Prime Minister Benjamin Netanyahu convened top economic and banking officials this week to discuss whether additional budget cuts would be needed to keep the deficit within target levels.

At issue is an additional cut of some $300 million that would come on top of a $2.2 billion cut approved by the Knesset at the start of the year.

The government has set a deficit target of 2.8 percent of the total gross national product.

The additional cuts may be needed in the wake of Israel’s ongoing economic slowdown.

Last week, the Bank of Israel reported that the slowdown in the final quarter of 1996 had continued into the first quarter of this year.

Finance Minister Dan Meridor indicated that he would support the new budget cuts, but did not propose any specific cuts, according to participants at the meeting.

Meridor said at the meeting that cconomic growth this year is estimated at 3 percent, a full percentage point lower than initial Finance Ministry projections.

Meridor blamed the continuing economic slowdown on the tight monetary policy of the Bank of Israel governor, Jacob Frenkel.

For his part, Frenkel voiced support for additional budget cuts, but warned that they should not be taken from such areas as education or infrastructure investment, moves he said could lead to higher taxes.

Frenkel also dismissed the position of the prime minister’s economic adviser, Moshe Leon, that additional budget cuts be accompanied by a drastic reduction of 1.5 to 2 percentage points in interest rates.

Members of Israel’s Manufacturer’s Association have called for an urgent meeting with the government and the Bank of Israel leadership to discuss what they describe as an “emergency plan to rescue the economy from the deepening recession.”

The plan includes the association’s repeated calls for sharp cuts in interest rates along with a 1 percent increase in the value added tax and cuts in government spending.