New Economic Package Deal Mulled

Premier Shimon Peres began consultations tonight on a new economic package deal to take effect when the three-month wage-price freeze instituted last November expires three weeks from now.

The Treasury and Histadrut officials are working on various plans and the Bank of Israel is preparing for a law that will forbid the government to print new currency to cover its deficit — forcing it indirectly to reduce spending.

SOME GOOD ECONOMIC NEWS

Israelis, meanwhile, had the increasingly rare experience of hearing some good economic news this week. The Central Bureau of Statistics reported yesterday a 29 percent improvement in the country’s balance of trade last year, reversing a two year trend. The trade deficit in 1984 amounted to $2.5 billion compared to $3.5 billion in 1983.

The Ministry of Commerce and Industry reported Tuesday that Israel’s industrial exports rose by 16.6 percent last year after two years of stagnation. And the Central Bureau of Statistics announced at the same time that there was no rise in the price index during the last two weeks of December.

These improved figures do not mean that Israel’s economic crisis is over. Much will depend on what steps the govemment takes in the months ahead. The nature of the new economic package has yet to be decided and Peres’ consultations began amid differences between the Premier and Finance Minister Yitzhak Modai on that subject.

CONCERN ABOUT MASSIVE GOVERNMENT SUBSIDIES

Modai maintains that the economy no longer can be regulated simply by administrative orders, such as the three-month wage-price freeze, in the absence of an overall economic policy. Peres considers such package deals essential to control inflation.

Modai has expressed concern that the freeze policy would mean continuation of massive government subsidies to preserve the price levels of controlled items. The government printed about 160 million Shekels last month to cover the cost of its subsidies.

Modai likens this to a fire under a pressure cooker which eventually will blow the lid off. He feels also that reduced inflation during the freeze period will be wasted without an agreement for further cuts in the State budget.

A PROPOSAL BY THE HISTADRUT

Histadrut Secretary General Yisrael Kessar came up with a proposal yesterday to compensate workers for rising prices of subsidized items without passing the increases on to the consumer price index and the cost-of-living index.

The effect of his proposal, if accepted by the government and the manufacturers, would be to break the sequence of automatic price and wage linkage, the main element of the inflationary spiral. According to Histadrut, this is the great advantage of the proposal. The plan calls for a “gradual and moderate” reduction of subsidies for fuel and basic foodstuffs in the context of a follow-up wage and price freeze.

Workers would receive individual cash payments in their next monthly salaries equal to the total cost of the price rises to the average consumer. Low income workers would receive a higher percentage compensaion than those with larger salaries. Modai is expected to respond to Kessar’s plan at a meeting with the trade union leader tomorrow.

OTHER ECONOMIC DEVELOPMENTS

The Central Bureau of Statistics reported that minor price increases in the first half of December were cancelled out by a drop in the second half of the month. Most consumer prices were in fact slightly lower than the maximum allowed under the wage-price freeze. The only items that showed an increase were fruits and vegetables which are not covered by the freeze.

The Ministry of Commerce and Industry attributed the increase in exports last year to the recovery in several foreign markets, notably the U.S. and a parallel decline in demand at home. The Ministry also credited he government’s policy of maintaining the level of profits in export industries and encouraging the development of a marketing infrastructure.