Behind the Headlines: Economic Plan Has Impact on Market, but Israelis Are Taking It in Stride

The new economic program unanimously approved by the Cabinet last week has thrown the securities market into turmoil. But so far, it has had little impact on the person in the street.

Ordinary Israelis remain preoccupied with unemployment, the housing shortage and rising living costs. But those are problems they have lived with for a long time, and they do not seem to be aggravated yet by the sudden influx of immigrants.

“In theory, we know that mass immigration will turn the country upside down,” said Albert, an elevator mechanic who immigrated from the Soviet Union 17 years ago. “But so far, we don’t feel it.”

The shekel was devalued last week, another frequent occurrence. And a tank of gasoline now costs $15, up from $10 a week ago.

But Israelis seem to be taking it in stride.

“I know it will eventually affect my bank account,” a teacher named Dalia said as she filled the tank of her Autobianchi, an Italian compact. “But I’m not willing to give up my car,” she added.

There is a general feeling here of a country that has adjusted to economic hardship. It is a poor country with a relatively well-to-do population. That paradox is visible in the supermarkets, where crowds of holiday shoppers trundle carts packed to overflowing.

There is every reason to expect that the upcoming three-day Rosh Hashanah weekend, like past holidays, will see the country’s roads jammed with vacationers, many driving latest-model cars.

Israelis, in short, are not about to give up the good life, even as their leaders talk about the sacrifices needed to absorb a million immigrants in the next five years.

STOCK MARKET PRICES UP

At the moment, the only visible apprehension is among institutional investors, such as pension funds, which scrambled to unload their bonds.

Bonds and other forms of saving would be subject to a 20 percent capital gains tax if Finance Minister Yitzhak Moda’i’s new economic package is approved by the Knesset.

The supply of bonds on the market reached a record $129 million Monday, causing a 3 percent drop in their price.

But stock prices are up. Stocks would be exempt from the tax in the expectation that if corporations can accumulate new capital, they will expand and create new jobs.

Moda’i is leading economic reform under the twin banners of economic growth and the massive absorption of immigrants.

But the road is strewn with economic minefields for the bondholders, owners of savings accounts and those who sell luxury apartments, all of whom would be subjected to a stiff new tax.

People in the lower economic brackets would suffer, as well.

Unemployment allowances are to be reduced by 15 percent. The jobless would have to accept any kind of work offered them. And the minimum wage would be reduced from $500 to $400 a month.

Israelis also would have to pay higher excises taxes on cigarettes and beer. The government is still deliberating over Moda’i’s plan to impose a value-added tax on fruits and vegetables sold from market stalls.

But nothing has been implemented yet.

The plan has to get through the Knesset, where stiff opposition is expected. The leaders of Histadrut, the trade union federation, have pledged to fight any plan that would reduce workers’ standard of living.

BOOST IN EXPORTS PREDICTED

There is a bright side to the program, especially for Israelis doing business overseas. Import licenses are no longer needed. And the tax on foreign currency transactions has already been lowered from 7.5 to 4 percent.

Other import duties were cut as Israel prepares for 1992, when the European Community, its biggest trading partner, becomes a single unified economic entity.

Increased imports are expected to stimulate Israel’s exports. Equally important, Moda’i wants to expose Israeli manufacturers to competition from overseas. The idea is to force them to compete efficiently or go out of business.

At a news conference last weekend, the finance minister wore a grin from ear to ear. Buoyed by the unexpected unanimous approval the Cabinet gave his plan, he forecast economic growth of 8.5 percent a year, up from the present 3 percent.

He predicted that exports would rise by 13 percent a year, tripling their current growth. The finance minister believes a streamlined Israeli economy will attract overseas investors.

Once foreign investors and the Jewish people see that the Israelis are meeting the economic challenge and are willing to make the necessary sacrifices, they too will lend a hand.

That is the optimistic view expressed by the Treasury and the Bank of Israel, the country’s central bank.

But there are dissenting voices. The chief criticism of Moda’i’s program is that it fails to say where Israel will get the necessary funds to absorb the hundreds of thousands of immigrants.

Professor Zvi Sussman, a former deputy governor of the Bank of Israel, said he saw no sign in the new plan of how the country would shoulder the “immense, historically unprecedented burden that will fall on Israeli society with the massive immigration.”

According to Sussman, to absorb 1 million people requires 400,000 new job opportunities and 250,000 new housing units. The average investment needed to create a new job is about $60,000.

$39 BILLION STILL NEEDED

This means the economy will have to raise some $24 billion in investments for jobs in the next five years and another $15 billion for new housing.

No one knows where Israel will get the gigantic sum of $39 billion, Sussman said. He pointed out that the government did not even bother to cut its own budget in the face of a mounting deficit.

“This economic plan creates unfounded optimism, which could generate dangerous complacency,” the economist warned.

But Moda’i is not worried. “When the new plan is fully implemented in five years, we shall have a different country with a different economy and with a different potential,” he said.