Knesset Backs Govt. on Compulsory Loan, Currency Exchange

The Israel Parliament today gave the coalition government a vote of confidence on its surprise currency exchange order and compulsory loan under which ten percent of all bank deposits and currency exchanges are being set aside for the use of the government. The vote, which came after a debate begun last night, was 56 to 37, with four abstentions.

The debate was opened by Finance Minister Eliezer Kaplan, who reiterated his explanation that the compulsory loan, from which the government hopes to obtain 25,000,000 pounds, will be used to cover part of the development budget and at the same time to fight the inflation. The Minister then explained that the government proposes to tax real estate owners rather than force them to set aside part of their assets in a loan.

This announcement raised a storm of opposition, even among Mapai deputies. But Communications Minister David Zvi Pinkas, who took over defense of the government’s position when Kaplan finished his presentation, said that if the government forced property owners to participate in the loan it would increase the inflationary spiral. He explained this by pointing out that the property owners had relatively little cash available and would be forced to seek morigages to obtain the cash for the loan. In the long run, he said, this would force the government to issue more currency to cover the mortgages and the purpose of the loan would be defeated.

Mr. Pinkas also rejected opposition charges that the compulsory loan meant “robbing the public” which would receive “devaluated money” when the loan matures in 15 years. He counterattacked by demanding to know why opposition deputies had so little faith in Israel’s economic future, adding that he was convinced that the loan would be repaid with a full-valued currency at maturity and that by that time conditions would have improved for all.

General Zionist leader Fritz Bernstein insisted that the money realized through the loan would be used to “fill a financial gap” rather than go for productive purpose. Therefore, he said, the loan would further intensify the inflation. He also charged that the compulsory loan would undermine the confidence of banks and investors in the country, and chided the government for acting without consulting Parliament.

Dr. Moshe Sneh, Mapam deputy, demanded that the compulsory loan be imposed on all monies over 200 pounds rather than the five pounds ordered by the government, and on bank deposits over 500 pounds rather than 50 pounds as is being done. He also suggested that the loan be imposed on holders of gold and other valuables who had thus far “escaped from contributing to the welfare of the state.” Both proposals were rejected by Parliament.