Premier Yitzhak Shamir’s two-day old coalition Cabinet was embroiled in an internal dispute today over the wisdom of its earlier decision to shore up sagging commercial bank shares in order to protect tens of thousands of investors who stand to lose heavily after the value of the shares collapsed over the weekend.
The decision was taken despite strenuous opposition by Finance Minister Yoram Aridor in the early hours of Tuesday morning. The ministers were fatigued after an all night marathon session dealing with the economic crisis.
They yielded to the arguments of Aguda Israel MK Avraham Shapiro, chairman of the Bank of Israel’s advisory board, who, in a dramatic 4 a.m. appearance, insisted that government intervention was in the national interest.
But now leading economists within and outside the Treasury are warning that the measure will defeat attempts to deal with the economic crisis and many ministers who approved it have had second thoughts.
ELEMENTS OF THE PLAN
According to the plan, the bank shares backed by the government would revert to the value they had on October 6, before the latest series of devaluations of the Shekel. They would be linked to the U.S. Dollar and investors who hold them for five years could redeem them at the October 6 price plus three percent annual interest.
Economists warned today that this would mean the payment of 140 billion Shekels to holders of bank shares with serious effects on the wildly inflationary economy.
Demands that the plan be cancelled or modified were heard at a stormy session of the Knesset Finance Committee today and prospects that it will be approved by the Knesset seemed dim. The bank shares collapsed because holders were cashing them in in a pell mell rush to buy Dollars and other foreign currencies when a sharp devaluation of the Shekel appeared imminent.
Trading in bank shares was immediately suspended. The Tel Aviv stock exchange remained closed today for the fourth consecutive day. Exchange sources indicated that trading will not be resumed before next week, by which time, it is hoped, the issue of bank shares will have been settled, one way or the other.
PANIC BUYING ABATES
Meanwhile, yesterday’s panic buying has abated. Householders who jammed markets to fill their larders before the 50 percent price hikes decreed by the government took effect, stayed home.
Shelves swept clean in the buying spree were replenished but there were few customers today willing to pay the new prices. Virtually everything from basic food stuffs to gasoline soared in price because the government withdrew or drastically reduced its subsidies for those items.
The rush on foreign currency has also been stemmed. At the new rate of 82.74 Shekels to the U.S. Dollar there were few buyers. But jewellers reported a brisk trade in gold and jewelry. Eighteen carat gold sold today at 1,235 Shekels ($14.93) per gram. There was also a rush to buy apartments to replace bank stock and foreign currency as an investment.
All imported goods are now priced 23 percent higher than last week, reflecting the 23 percent devaluation of the Shekel. People who had already purchased new cars at the former rate were forced to come up, on average, with an additional 500,000 Shekels before taking delivery.
The Archive of the Jewish Telegraphic Agency includes articles published from 1923 to 2008. Archive stories reflect the journalistic standards and practices of the time they were published.
