Shultz Praises Israel’s Economic Reforms but Indicates That U.S. Funds Would Be Withheld for the Tim

Secretary of State George Shultz and Israeli Prime Minister Shimon Peres offered glowingly upbeat reports Tuesday on the state of Israel’s economy as a result of recent austerity measures and economic reforms. The lavish praise accorded the Israeli leadership in its efforts to reform the economy left observers all the more surprised when Shultz subsequently indicated that the second half of an already-approved supplemental assistance grant would not be disbursed just yet.

Payment of the first half of the $1.5 billion supplemental package that Congress approved last year was announced during the last visit here by Peres in the fall, and Shultz was expected to approve the disbursement of the second half after his meeting with Peres Tuesday. The remaining $750 million is to be awarded during the current fiscal year.

Speaking to reporters following a luncheon for Peres at the State Department in which each praised the other for his role in helping the Israeli economy get back on its feet, Shultz said the two had discussed the matter of disbursement but indicated that the funds–would continue to be withheld for the time being. “Our guiding principle will continue to be how (the funds) will be most helpful to the economy of Israel,” Shultz said.

SUBSTANTIAL ECONOMIC CHANGES REQUIRED

Shultz, an economist who has been personally involved in pressing for economic reforms to the Israeli government, has often stressed that extra assistance will have no effect in the absence of substantial changes in economic policy. A request to Congress for the supplemental aid was accordingly held up for months last year to the point where legislators were suggesting they would go ahead and approve the aid without an Administration request.

But Shultz and Peres maintained the economic reform program adopted by the national unity government in Israel last July was working wonders, and both suggested that Peres has been effectively converted to the Reagan Administration’s economic views.

If Israel wants to promote economic growth, it will first have to raise its exports in order to further cut its trade deficit, Peres said. Secondly, he added, there was a need “to cut out the government from getting itself involved in running business.”

Referring to what he called his new awareness about the need to emphasize the private sector and reduce the role of government in the economy, Peres observed that “a pessimist is an optimist who learned the details of the situation. I started as an optimist but then I learned something.”

The Israeli reform program has involved substantial government spending cuts, much of it coming from reductions in subsidies on consumer goods and government employee layoffs, a wage and price freeze and a restrictive monetary policy meant to keep interest rates high and thus reduce private spending.

With the adoption of the new program, a group of American Jewish and Israeli businessmen headed by veteran Jewish leader Max Fisher, formed Operation Independence–an organization aimed at helping the Israeli economy through private sector initiative. The group has worked at promoting commercial endeavors to increase Israeli exports and tourism.

Tuesday’s luncheon was attended by Fisher and other members of the organization, which was applauded by the Secretary of State for its work in steering the Israeli economy toward a free enterprise system. “I think the work of Operation Independence can make a permanent difference in Israel’s future,” Shultz said at the luncheon.

According to still unpublished figures presented by Peres at the luncheon, Israeli inflation has come down from a monthly rate of 24 to 25 percent to 1 or 1.5 percent. Peres also noted that for the first time in the history of the Jewish State, Israel has just ended a budgetary year without a deficit. Peres said he was hoping to reach the stage when Israel and the US “can be friendly, without asking for any assistance.”