Israeli Pound Joins U.S. Dollar in Ten Percent Devaluation

The ten percent devaluation of the U.S. dollar announced last night by Secretary of the Treasury George P. Schultz in Washington had repercussions today in Israel. A ten percent devaluation of the Israel pound was announced despite statements by top Israeli monetary authorities as late as this morning that the IL would stand firm.

Experts here said it was too early to assess the full impact of the dollar devaluation on Israel’s economy (A spokesman for the Israel Discount Bank in New York told the Jewish Telegraphic Agency that IL 4.20 to $1 remained the official rate of exchange as of today.)

Early indication were that the dollar devaluation would have both good and bad effects on Israel’s economy. Monetary circles pointed out that since the IL is pegged to the U.S. dollar, a de facto devaluation was unavoidable with respect to European and Japanese currencies.

This means that Israeli exports to non-dollar countries will gain an advantage but imports of European and Japanese goods will be more expensive. About 12 percent of Israel’s imports come from the U.S. and will benefit from the cheaper dollar. Another 19 percent comes from Britain where the position of the pound stealing is still uncertain. As a result of the dollar devaluation Israel has become one of the cheapest countries for European tourists to visit but more expensive for Americans.

CONCERNED ABOUT EFFECTS IN WAGE-PRICE SPIRAL

Israeli economic planners waging war on inflation were concerned today over the effect the dollar devaluation will have on the wage-price spiral in Israel at a time when most labor contracts are under negotiation. The higher price of imported goods from non-dollar countries–notably West Germany and Japan–is expected to result in demands for higher wages by Israeli workers.

Most observers believe that Israel is on the verge of a new round of price increases despite the insistence in ministerial circles that price hikes are unnecessary because Israel has a sufficient stock of goods for the time being. Consumer items in heavy demand here include cars, television sets and electrical appliances from West Germany and other European countries and the Japanese Subaro cars which have become popular with Israeli drivers.

REPARATIONS RECIPIENTS WILL BENEFIT

The dollar devaluation will benefit Israelis receiving reparations payments from West Germany, They will now get more Israeli pounds for their marks which could fuel the inflationary spiral. Israel presently takes in almost three quarters of a billion marks through reparations payments which are the equivalent of IL 1 billion. Israeli financial circles said today that some sort of saving program would be offered to recipients of reparations payments so that they would not immediately convert their German currency into Israeli pounds.

Israeli banks continued to exchange foreign currency today at rates based on last Friday’s quotations with changes to compensate for the dollar devaluation. With European money markets closed at least until tomorrow, import and export transactions here were suspended today; Israelis leaving the country and Incoming tourists were not limited in the amounts of foreign currency they could exchange, Israelis, however, are subject to the limitation of the permanent foreign currency regulations.