The Shekel was devalued by nine percent last night in an effort to stem the panic buying of Dollars by the public. Finance Minister Yitzhak Modai called it a moderate devaluation. He said bringing the Shekel down to an official rate of about 400 to $1 would not be followed by any more “big”devaluations and should calm public fears.
Economics Minister Gad Yaacobi reported today that the government’s coffers were emptied of more than $60 million last Friday alone as the public rushed to buy Dollars in anticipation of a further devaluation of the Shekel. The lower the Shekel the more expensive the Dollar on both the official and the black markets.
Bank of Israel sources who had been opposed to a new devaluation said today that they could live with the nine percent reduction if it is followed quickly by a broad economic austerity program. The government is in fact preparing sweeping economic measures. The nine percent devaluation and a corresponding nine percent increase in fuel prices announced last night were preliminary moves.
MAPPING AN AUSTERITY PLAN
Senior Cabinet ministers met with Histadrut leaders for three hours last night and both sides reported progress toward a “package deal” of wage and price freezes. Histadrut Secretary General Yisrael Kessar said he would cooperate if the “load falls equally” on all sectors of the economy.
The government is mapping its own economic austerity plan in addition to seeking wage and price restraint from labor and employers. The new unity government resolved at its first Cabinet meeting yesterday to slash $1 billion from its fiscal budget. Premier Shimon Peres, Modai, Yaacobi and Deputy Premier Yitzhak Shamir were empowered to discuss spending cuts with each minister individually and to reach agreement on precisely how much is to be trimmed from each ministry’s budget.
Half of the $1 billion cut is expected to come from reduced operating costs and half by sharp reductions in government subsidies for basic commodities. An even steeper rise in fuel prices is expected in the next few weeks and the prices of other basics will go up by two dozen or more percentage points.
Press reports today predicted slashed in health, education and welfare expenditures in the amount of about $250 million. That would mean major reductions in government aid programs for all citizens. Modai reportedly will raise the value-added tax (VAT), the sales tax and property tax.
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