The 7.5 percent devaluation of the Shekel promulgated yesterday was only the beginning of new measures to control Israel’s headlong inflation, economic observers said today, but they added that Treasury officials themselves are divided over what the additional measures should be.
The Treasury has announced that it wants a total cut in the budget of 55 billion Shekels but there is little certainty that the Cabinet will approve so sharp a cut.
As of yesterday, the Ministerial Economic Committee had approved cuts in the budgets of the ministries of communications, transport, tourism and housing, leaving the Treasury well short of its 55 billion Shekel cut goal. The budget cuts for the ministries of defense, education, health and welfare remained in dispute. The Ministerial Economic Committee also recommended a tax package which would bring in some 15 to 20 billion Shekels, but it must still-find enough cuts to reach the Treasury target.
TWO POSSIBLE OPTIONS
The economic experts said the two possible options were both nettlesome. One would be limits on private income and the other more cuts in public services. The experts said that the public probably would react to any limitations on income by drawing on savings, which would be counter-productive to the goal of cutting consumption.
Apparently for the first time since Finance Minister Yoram Aridor announced a policy of budget cuts, coupled with resistance to wage increases, economic experts and government officials were in agreement that devaluation of the Shekel would help curb inflation only if it was accompanied by drastic cuts in government spending. This was said to be necessary to curb the injection of cash into the economy, one of the factors in spurring the nation’s raging inflation.
Yaacov Gadhis, director of the Treasury’s budget division, said that the budget cuts, if approved, would bring a massive and unprecedented slash in government services. But he conceded that barriers to such cuts remained to be negotiated. The main dispute is still the cuts the Treasury seeks of 20 billion Shekels in the defense budget. But the Defense Ministry is understood to be willing to accept only a maximum cut of five billion Shekels.
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