Peres Says U.S. Made No Conditions for Providing Additional $1.5 Billion

Premier Shimon Perss, stressing that the U.S. has made no conditions for providing an additional $1.5 billion in economic aid to Israel, disclosed today that Israel has in fact rejected certain recommendations by the Reagan Administration to improve its economy.

He said the suggestions turned down called for a large scale devaluation of the Shekel and abolition of linkage to the consumer price index and to the Dollar. Addressing students at Tel Aviv University, Peres said that while Israel acknowledged that such measures might help cure its economy, they could not be taken because they would result in massive unemployment. Earlier in the week, Peres estimated that 150,000 Israelis would be made jobless if the American plan was adopted.

The Premier also stressed that most of the economic aid Israel will receive from the U.S. will be spent to service Israel’s huge debt to the U.S. for arms purchases. Not one dollar will be used to raise the living standards of Israelis, Peres declared. If any funds are left over after debt repayment, they will be used to increase Israel’s foreign currency reserves which is essential to a stable economy, he said.

The U.S. has informed Israel that it will provide the $1.5 billion in economic aid, in addition to $3 billion in economic and military assistance already approved for fiscal 1986, all of it grants. A formal announcement is expected when Secretary of State George Shultz visits Israel May 9. (Related story, P. 2.)

But yesterday, only a day after the additional aid was confirmed, newly released figures showed that Israel suffered a severe setback in its fight against inflation last month along with a further diminution of its scarce foreign currency reserves. The government, it was disclosed, was forced to print 148 billion Shekels in April in sharp contrast to March when no new currency was printed.

FOREIGN CURRENCY RESERVES REDUCED

At the same time, foreign currency reserves were reduced by another $44 million and stand at $2.86 billion, far below what economists consider the danger point.

The injection of relatively large amounts of currency into the economy was required because the public withdrew some 50 million more Shekels from its savings accounts than it put in and because of a rise in government spending. Treasury sources insisted however that government spending actually shrank by 15 percent compared to the average of the previous three months.

Another reason to print more money was the steady drop in tax revenues. In the past few years, tax revenue has fallen by 14 percent, laying an increasingly heavy burden on wage earners.

In his address at Tel Aviv University, Peres assailed opponents of Israel’s participation in research for the U.S. Strategic Defense Initiative (SDI), popularly known as “Star Wars.” Israel was one of only three non-NATO countries invited by the U.S. to participate.

Peres said the project has tremendous political and technological significance. He also stressed the very strong contacts between Israel and the U.S. in general and specifically, the personal contacts with President Reagan. He said the U.S. is giving economic aid in order to have a strong, democratic ally in the Middle East.