Unity Government Divided on Matters of Economic Policy

Serious differences over economic policy on the Likud side of the unity government have cast a cloud over Premier Shimon Peres’ upcoming trip to Washington to seek immediate, substantial increases in U.S. economic aid.

Deputy Premier David Levy abruptly resigned from the special ministerial committee negotiating economic matters with Histadrut. At Sunday’s weekly Cabinet meeting he sharply attacked the economic policies of Finance Minister Yitzhak Modai and charged that the unity government’s economic measures taken so far will bear down hardest on wage earners.

Levy is a member of Likud’s Herut wing, Modai is a Likud Liberal. Their quarrel is seen by observers as another manifestation of the tension between Herut and the Liberals which was evident long before the July 23 Knesset elections.

Levy’s aides are telling the media that Finance Minister Modai is “shooting aimlessly in all directions, cooperating with Peres, surrendering to pressure from the Histadrut and ignoring Likud and the ministerial economic committee. ” Modai, seeking to avoid a confrontation with Levy, took credit for securing $920 million worth of budget cuts over a very short period.

Liberal Party sources, however, are accusing Levy of trying to curry favor with workers in preparation for the next Histadrut elections and positioning himself for a leadership race brewing within Likud.

Differences within the economic hierarchy came to the fore with the resignation Sunday of Nissin Baruch, Director-General of the Finance Ministry, and his prompt replacement by Emmanuel Sharon, the man Baruch himself had replaced only last June.

GOVERNMENT CRITICIZED FOR DRAGGING ITS FEET

Baruch’s letter of resignation criticized the new unity government for failure to take speedy, decisive measures to solve the country’s worsening economic crisis. He charged that the measures agreed to so far would only fuel inflation and impose additional burdens on the poor.

Sharon, 55, who headed the Treasury in the final months of the Likud-led coalition government, had issued a blast against “election economics” when he quit last June. He planned to enter private business but reportedly was urged by Modai to return to the Finance Ministry. He, like Baruch, is known to advocate very tough economic measures to prevent economic collapse.

There is considerable speculation over how these developments might affect Peres’ mission to Washington. He leaves for the U.S. next Saturday night and is to meet with President Reagan, Secretary of State George Shultz and other top Administration officials.

Peres is expected to ask the Americans to increase aid to Israel by $600 million a year in each of the next five years, which would raise it to $2 billion a year, a total of $10 billion over five years. It is reported, moreover, that Peres will ask that the entire aid package be in the form of grants so that Israel could use the greater portion for purchases at home rather than in the U.S.