Suspense ran high in Israel tonight as the nation awaited the outcome of a marathon Cabinet session that was expected to produce the most far-reaching and draconian economic emergency program in the history of the State.
The program, presented by Finance Minister Yitzhak Modai, has the strong backing of Premier Shimon Peres. Its aim is to try to halt Israel’s rapid slide toward economic collapse. Cabinet sources said today that Peres made it clear at the outset of today’s meeting that he would keep the Cabinet in session all night if necessary until the ministers took a decision.
Once the decision is made, every minister will have to support it publicly or resign, Peres is reported to have said. Sources close to the Premier expressed confidence however that the economic program, however painful, will be adopted. If not, they warned, the Labor-Likud national unity government will not long survive.
HISTADRUT LEADER DENOUNCES MEASURES
Selling the program to the Cabinet is only a first step. As the ministers began their meeting today, Histadrut Secretary General Yisrael Kessar angrily denounced some of the likely measures: a drastic hike in the prices of subsidized products; a three month total freeze on wages and prices; suspension of cost-of-living increments for the months of May and June; dismissal of about three percent of the civil service workforce; a three percent cut in the wages of civil servants; and a new devaluation of the Shekel.
"We shall not allow a government headed by a representative of the Labor Party to harm the wage-earners in this way, " Kessar declared. He and Chaim Haberfeld, head of Histadrut’s trades union department, said they would not allow Peres and Modai to impose an economic plan that would reduce the living standards of working people, even if it meant bringing down the government. The Histadrut Central Committee is threatening to disrupt and prevent implementation of such a plan if the government tries to impose it by emergency decree.
PAIN WILL BE SHORT
According to government sources, the economic measures will hurt many constituencies but the pain will be relatively shortlived and mass unemployment will be avoided. Peres himself last week said that workers will earn less but they will not go jobless.
Cabinet sources said Modai is convinced that if his program is implemented, the economy could be turned around by next fall. Economic growth and expansion would resume and there will be no sustained large scale unemployment.
The sources said the program allows for skyrocketing inflation over the summer, in the order of 25-30 percent a month. But by September or October, the inflation rate would fall to 3-5 percent a month.
The urgency of the government’s measures stemmed apparently from an anticipated further steep decline in the country’s foreign currency reserves. Peres and Modai spent most of last Friday closeted with top Treasury and Bank of Israel officials and two leading economists, Profs. Michael Bruno and Eitan Berglass. It was after those conferences that the Treasury worked feverishly to prepare detailed proposals for today’s Cabinet meeting.
COMPREHENSIVE PLAN REPLACES PIECEMEAL EFFORTS
Observers noted that this would be the first time the unity government attempted a comprehensive plan to cure Israel’s economic ills. Past measures had been piecemeal, addressed to one or another problem, either soaring inflation or stagnant growth. There has never been an across-the-board approach.
The heart of the new program is a deep slash of the national budget, a measure virtually all economists have been urging for many months. The Cabinet, it was said, must recognize that its earlier budget-trimmings were often honored more in the breach than in the observance.
Reports leaked from the Cabinet room today spoke of a $1.5 billion cut in the State budget which stands at about $23 billion. This would be achieved by slashing price support subsidies and cutting back on government activities. The latter would include dismissals of about three percent of government employes. Various taxes and levies would be raised while social entitlements and incentives to business would be lowered.
12 PERCENT EROSION IN REAL WAGES
According to unofficial reports, other measures include: a 20 percent devaluation of the Shekel, the rate of which would be frozen for a three month stabilization period resulting in reduced government incentives to exporters; a 20-30 percent one-time rise in the prices of subsidized items and higher prices as well for non-subsidized consumer products, all prices to be frozen for three months.
There would be, according to these reports, an estimated 12 percent erosion in real wages and salaries by the beginning of October, part of which would not be compensated for, as in the past, by cost-of-living increments. Income tax advances paid by companies and self-employed persons at the start of the tax year would be raised.
In addition, the government would clamp down on foreign currency transactions. Israelis no longer would be able to deposit their Shekels in Dollar-linked accounts. However, the Treasury would allow people now holding Dollars illegally to deposit them in interest-earning accounts and draw on them for travel abroad.
JTA has documented Jewish history in real-time for over a century. Keep our journalism strong by joining us in supporting independent, award-winning reporting.
The Archive of the Jewish Telegraphic Agency includes articles published from 1923 to 2008. Archive stories reflect the journalistic standards and practices of the time they were published.
