Modai Predicts Drop in Monthly Inflation Rate; but Will Propose Added Half Billion in Budget Cuts

Finance Minister Yitzhak Modai told the Knesset today that he would present his proposals for further budget cuts to the Cabinet at its meeting next Sunday.

At a press conference yesterday, Modai predicted a dramatic drop in the monthly inflation rate from its present double-digits to six percent by the end of the three month wage-price package freeze in January. He warned however that without an additional half-billion Dollar cut in the budget, the freeze package would fail.

The Finance Minister conceded that further cuts in the budget would mean layoffs and rising unemployment and that defense expenditures would not be exempt.

“For many years,” Modai told the Knesset, “the State of Israel has been living above its means … There is a limit to our capacity to use outside help to preserve a level of expenses which is much higher than the income level.” Reviewing the causes of Israel’s present economic crisis, he noted that in the period 1972-1983, the country’s foreign debt soared from $5 billion to $22 billion.

SEEKS LESS CIVIL SERVANTS

At the same time, the internal debt increased from a rate of 42 percent of the gross national product to 126 percent of the GNP. More than 38 percent of the budget is now allocated to servicing foreign and internal debts, he said. He noted also that for every industrial worker in Israel there are three-and-a-half civil servants on the payroll. That ratio should be reversed, he said.

Last Thursday, Treasury sources leaked the news that they envisaged a sharp rise in unemployment — from the current 10,000 to 20,000 — as a result of civil service dismissals alone. Factory layoffs due to the price freeze could account for additional jobless, the sources said, because frozen prices will result in slowed down production.

Modai was forced to defend the wage-price freeze package over the weekend against public figures who expressed doubts about its viability.

Some sources predicted the three month freeze would end after a month. Gideon Patt, Minister of Science and Development, warned that a “catastrophe” would follow the freeze. Economics Minister Gad Yaacobi predicted that the freeze would be extended beyond the three month period. Deputy Premier David Levy told the Cabinet yesterday that the freeze package was not an economic program but a preliminary measure to be used to advance the economic rehabilitation process.

Last Friday, Modai officially denied media reports that the Treasury was considering abridging the freeze. The media attributed the report to unidentified sources at the Treasury. Modai made it clear that no such source could speak with authority unless he sanctioned it, which he did not. The Finance Ministry is fully committed to the freeze and the entire package deal and will uphold it unwaveringly throughout the specified three month period, he said. Sources close to Premier Shimon Peres expressed cautious optimism Friday that after initial confusion and administrative errors over the price freeze, the measure was finally taking hold.

CRACKDOWN ON BLACK MARKET

Jerusalem police meanwhile began a crackdown today on Arab money changers in East Jerusalem. They served notice that effective November 18, legal action would be taken against anyone who trades in Dollars or other foreign currency without a license.

The police are also taking action against black market money changers in Tel Aviv and Jerusalem. However, high level government sources concede that it is impossible to eliminate the black market until the overall economic situation improves. They said the purpose of police action was to prevent open trading in foreign currency and to underscore the gravity of violations of the currency laws at a time when the nation’s foreign currency reserves are at an historic low.

MUNICIPAL EMPLOYES STRIKE AVERTED

In another development related to the economic crisis, a threatened strike by municipal employes all over Israel this week was averted after the Prime Ministers Office announced that Peres would personally look into the financial plight of local town councils.

Municipal workers in Haifa and Tel Aviv went on strike last week and teachers walked off the job to protest non-payment of their October salaries, due November I. The municipalities, unable to meet their payrolls, blamed the Interior Ministry for delaying the disbursement of funds.