News Analysis: Budget Crisis Imperils Coalition, Prompts Delay on Peace Process

Israeli Prime Minister Benjamin Netanyahu hardly expected to face a chorus of “Bibi, Go Home” from hundreds of workers in Ofakim.

After all, some 80 percent of this southern development town, with its largely Moroccan population, chose Netanyahu over the Labor incumbent, Shimon Peres, in last year’s election.

Yet when the premier swept into town this week, leading an anti-unemployment task force of ministers and senior officials, he was roundly booed.

Ofakim, the site of violent protests for more than a week, has the largest unemployment rate in Israel — 14.3 percent.

Netanyahu arrived with plans to create some 300 new jobs for the town of 25,000 — but local residents still had their doubts.

As the premier arrived, the town’s second-largest textile factory announced that it was laying off some 100 workers. It is joining many others in the industry in moving part of its production to Jordan, where wages are markedly lower.

Ofakim is not alone. Unemployment in most other Negev development towns has surged past 10 percent in recent months — 13.2 percent in Sderot, 12.8 percent in Kiryat Gat and 12.7 percent in Yeroham — communities that also backed Netanyahu’s election.

While the Negev figures are way above the national average, there are now more than 151,000 Israelis out of work — more than 7 percent of the work force. It is the highest figure in years.

The economic data, released in mid-December, have placed the spotlight on the issues of unemployment and the widening social gap.

While working people often find it hard to make ends meet, a thin but growing segment of Israeli society is growing rich.

Some surveys show the income gap to be among the widest among Western industrialized countries.

To make matters worse, the economic figures showed a negative inflation rate for the preceding month.

While in principle the dousing of inflationary flames is a prime goal of the central bank’s policies, the negative November figure gave rise to fears that a recession is deepening.

The grim statistics and the public preoccupation with jobs and wages could hardly come at a worse time for the prime minister and his coalition.

The Dec. 31 deadline for Knesset adoption of the annual state budget looms large on the political calendar.

Under Israel’s electoral laws, a government can technically survive for three months — until the end of March — without an approved budget.

But political experts say the blow to a government’s prestige implicit in a Knesset vote against the budget would most probably result in its early demise and the holding of new elections.

There is meanwhile no certainty, given all the infighting within the coalition in recent weeks, that the budget will pass.

Foreign Minister David Levy, who has been publicly critical of the prime minister and a hard-line group of ministers over plans for redeploying Israeli troops in the West Bank, is also among the sternest critics of the government’s economic policy.

“We are on the edge of disaster,” the foreign minister said at the Cabinet meeting Sunday, when he accused the premier and Finance Minister Ya’acov Ne’eman of insensitivity and ignorance regarding the living conditions of low- income families.

Levy’s Gesher Party and the Shas Party are both keenly attuned to social welfare issues since both draw substantial support from Israel’s mainly working-class Sephardic population.

Indeed, the minister of welfare, Shas’ Eliyahu Yishai, called Ne’eman a “slippery eel,” accusing him of wriggling out of social welfare commitments in the proposed budget.

Along with Shas and Gesher, the National Religious Party and Yisrael Ba’Aliyah Party have threatened to vote against the budget if planned cuts in child allowances and health spending are not canceled.

Because of the wrangling over the budget, according to American sources, the Clinton administration let up on its diplomatic pressure concerning Israel’s redeployment from the West Bank and extended its deadline for a workable plan until mid-January.

Netanyahu has met twice this month with U.S. Secretary of State Madeleine Albright in Europe, and is expected to bring to the White House next month his government’s military pullback proposal.

Clinton administration officials are said to have acknowledged that Netanyahu’s leverage among his own ministers and coalition allies will be much stronger if and when he has the budget safely behind him.

Indeed, Netanyahu got his Cabinet to sign off on the Hebron Agreement in January once he was safely through the budget process.

In the longer term, however, the premier’s domestic troubles are unlikely to end even if the Knesset passes the budget.

Economic experts say the essential difficulty is that the budgetary solutions envisaged by Netanyahu and Ne’eman need time to take effect, while the political problem posed by rising unemployment allows for no delays.

The budget is based on a philosophy that growth in the business sector is the best and healthiest way of creating more jobs.

Ne’eman’s package proposes severe restraint on government spending — apart from investments in infrastructure.

It is designed to encourage greater competitiveness, to further liberalize foreign exchange regulations as an inducement to overseas investment and to plow ahead with the privatization of state-owned companies and financial institutions.

Netanyahu does not hide his admiration for Britain’s controversial “Iron Lady,” former Prime Minister Margaret Thatcher.

But she took on the unions when backed by a sizable majority — and, more importantly, a dependable majority — in the House of Commons.

With socialist-leaning parties like Shas and Gesher in his coalition, Netanyahu cannot afford a fight with Israel’s labor unions — who launched a paralyzing five-day strike earlier this month — or, for that matter, with the workers of Ofakim, if he hopes to survive in office into 1998.