Management, Labor Back Devaluation of Pound

The two percent devaluation of the Israel Pound, announced by the Cabinet yesterday, met with approval in labor and management circles today and was taken in stride by the public. There was no rush on stores to stock up with goods and there was even a slight drop in the price of black market dollars which is usually high at this time of year when many Israelis are preparing for vacations abroad.

Yesterday’s devaluation was nominal compared to the 43 percent devaluation eight months ago. The Pound-dollar ratio is now IL 6.12-$1, up .12. But the Cabinet’s decision to empower the Finance Minister and the Governor of the Bank of Israel to devalue the Pound by an additional two percent every 30 days–already dubbed “creeping devaluation”–has created some uneasiness. Histadrut Secretary General Yeruham Meshel, while welcoming the latest move, warned the government not to utilize its periodic devaluation powers but rather to set a firm devaluation target.

Finance Minister Yehoshua Rabinowitz said the new system was instituted to regularly update the Pound’s value on the world money market without sending shock waves through the economy. The chief aim, as with previous devaluations, is to stimulate exports. Abraham Shavit, president of the Israel Manufacturers Association, approved the devaluation but demanded that incentives for exports be maintained.

CONSUMERS GIVEN ASSURANCE

As far as the consumer is concerned, the government has given assurances that the prices of essential commodities, including oil, will re-

The stock exchange operated normally today though there was a decline in some issues that were sold off in order to buy dollar-linked stocks which have now appreciated in value. Banking circles here believe that the new devaluation will give impetus to dollar-linked bonds, the trade in which has been slow in recent years. Many purchasers heretofore preferred cost-of-living linked bonds as the COL was consistently rising.

Economic experts said today that several factors decided the government to announce the new devaluation at this time. For one thing, the November, devaluation did not achieve its targets. Imports were reduced, but the expected increase in exports did not materialize, the economists said and another monetary move had to be made.

There was also pressure on Israel by the International Monetary Fund which opposed the present system of incentives to exporters and insisted on a more realistic rate of exchange. Some IMF loans to Israel were held up pending a new devaluation. Another factor is the imminent entry of Israel into the European Common Market region which will require a reduction of protective tariffs. The Finance Ministry was said to have been impressed with the success of the “creeping devaluation” system adopted by Brazil. The Finance Minister hopes the government will be able to withstand pressure from internal sources for increased export incentives while at the same time making every effort to increase exports. Most experts, however, agree that there is much about the new system that is unpredictable, but a step in the right direction.