Israeli Official Sees Economic Prospects Improving for Rest of 1985

Despite a record-breaking 27.5 percent jump in the cost-of-living index in July, Israel’s monthly double-digit inflation is “behind us” and economic prospects for the rest of 1985 are “highly encouraging,” Uri Oren, an Israeli consul and government economic spokesman in New York, said this week.

Oren explained that inflation soared last month because government subsidies on basic foodstuffs and public transport were cut or eliminated on July 1 and Israel’s currency was devalued by an additional 25 percent.

The immediate result of these economic austerity measures, he said, was “vastly higher prices for consumers.” This in turn will cause an erosion of wages in real terms during the next three months of some 25 percent, over and above a wage erosion of some 15 percent in the past year, Oren noted.

POSITIVE INDICATORS

This substantial reduction of purchasing power, in addition to the temporary freeze on prices, is expected to lead to a significant drop in the inflation rate, Oren added.

Among the positive indicators that have already emerged as a result of the new economic measures instituted by the government, the Israeli official said, is a halt in the decline in Israel’s foreign currency reserves. During the month of July these reserves which had been declining substantially for the last year, actually increased by $3 million, he reported. During July, too, for the first time, this year, not only did the government not print any new money, but in fact absorbed from the public some $170 million, he reported.

“Perhaps the most important single step to break the cycle of inflation has been the government’s action to eliminate the automatic ‘linkage’ between prices and wages, under which every monthly rise in the cost of living was compensated by a nearlymatching increase in payments to employees, “Oren said

The compensation for the 27.5 percent inflation rate during July was a one-time payment of 12 percent, instead of the automatic 22 percent wage hike workers would otherwise have received under the old formula, Oren said.

EXPORTS UP, IMPORTS DOWN

In other areas of Israel’s economy, Oren reported, “recent developments are highly encouraging.” He said Israeli exports were in a rising trend, running ahead of last year’s figures by 7.6 percent in the first six months of 1985.

July’s export figures were 24 percent higher than a year ago, he said, with most of the increase coming in high-technology products as well as consumer goods such as processed foods, jewelry, plastics and textiles. Trade with the United States was “leading the way,” Oren disclosed. He said Israeli exports to the U.S. rose by 25 percent in the first half of 1985.

While exports were rising, imports continued to decline, falling by 7.5 percent during the first six months of 1985, Oren said. From January through July, Israel’s balance-of-trade deficit was reduced from $1.753 billion in 1984 to $1.148 billion this year, an improvement of 35 percent. Last year’s trade deficit was 29 percent less than 1983.