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New Economic Plan Goes into Effect

April 2, 1985
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The prices of hundreds of goods and services went up by 10-15 percent as of midnight last night as the Treasury introduced a new economic package deal approved last week by the government, business and the Histadrut.

The new plan was put into effect immediately at the insistence of Finance Minister Yitzhak Modai and the Employers Association, despite strong opposition from many ministers and labor who argued that consumers should not be faced with higher prices barely a week before the start of the Passover holidays.

But Modai and his aides insisted that the Treasury could no longer sustain its subsidies of foodstuffs and other items in face of a rapidly declining Shekel. The Employers Association threatened yesterday to pull out of the deal if there was any delay in implementing the price hikes. They said they had agreed to the package with the understanding that the first round of price increases would become effective immediately. A week ago, the government hiked the price of petrol and other fuels by 13 percent.


The package deal calls for price rises now, a two-month freeze at the new level, to be followed by a second round of increases and another freeze. It replaces the wage-price freeze package instituted last January which had only limited success. Subsidies continued to drain the Treasury and inflation soared by 13.5 percent in February compared to only a five percent rise the previous month. The new package has been called — euphemistically — a “reinterpretation” of the one it replaced.

Modai was determined to ignore the protests by Histadrut and many of his fellow ministers to hold the price rises in abeyance until after Passover. Deputy Premier David Levy spoke of “streams of housewives” jamming supermarkets Saturday night to make their holiday purchase before the new prices took effect.

The new package deal was adopted in the course of a grueling debate in the Knesset over the new national budget which began last Tuesday and ended in the early hours of Friday morning. The bleary-eyed lawmakers finally agreed to a budget of 20.2 trillion Shekels (about $23 billion), for the 1985-86 fiscal year which starts today.

The debate, which kept the Knesset in session three days beyond its scheduled adjournment for spring recess, was marked by acrimonious wrangling with the various Orthodox parties over allocations for their religious institutions. The Labor Ministry also demanded increased funds for Kupat Holim, the Histadrut sick fund.

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