Economic Crisis Increasing
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Economic Crisis Increasing

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Israel is facing a severe economic crisis which the Likud-led caretaker government may be forced to deal with before a new government is formed.

This morning the prices of basic commodities were raised by 15 percent and petrol by 20 percent in an attempt to keep pace with inflation. But economic experts agreed that this was a weak paliative and that radical measures are a “must” that cannot be long delayed.

The crisis atmosphere was heightened by the news Sunday that the country’s foreign currency reserves are at a dangerous low and that the Treasury injected a record 135.4 billion Shekels (about $413 million) into the economy in August, the largest amount ever for a single month. To make matters worse, tax collections declined last month.

According to figures released by the Central Bureau of Statistics Sunday, foreign currency reserves shrank last month by $192 million to the $2.4 billion level. This is some $600 million short of the $3 billion which is the “red line” or danger point, and the lowest level since 1978.

Economists warned today that the “government is losing control of the situation.” The immediate concern is that if present trends continue, Israel may find it difficult to raise credit in the world monetary markets. The Treasury has prepared a comprehensive economic austerity program but the government has refrained from implementing it so far.


Bank of Israel Governor Moshe Mandelbaum’s three-stage plan aimed at a substantial reduction of the inflation rate would cut the State budget drastically. Deficit spending in the public sector would be offset by offering better savings plans and selling State-owned lands to the public. Real wages would be cut back to the 1982 level. Under a proposed package deal with Histadrut, wage-earners would not longer be compensated for price hikes resulting from reduced government subsidies.

Government sources explained that much of the foreign currency outflow went to service foreign loans. According to the Central Bureau, about 34 billion of the newly printed Shekels were allocated to subsidize exports and settle debts. Another 58.5 billion went to cover public expenditures and the balance will service the government’s internal debts.

The Treasury reported, meanwhile, that tax collections in August amounted to 208 billion Shekels, 20 percent less in real terms than collections in August, 1983.

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