The Prospects for Israel's New Government

...Aguda seized on what it called "thereopening of thecoa-lition framework" to extract from the Prime Minister further religious and financial concessions in exchange for its continued support...

...Then he proceeded to further inflame the atmosphere by confirming that he had asked the U.S...

...But where Labor finance ministers responded by trying to make Israelis work harder, import less and export more, the Liberal Party, having received Eliahu Salpeter, aregularUhcontrib-utor, is a correspondent for Ha'aretz...

...The downturn in the economy predates Likud's ascendancy under Begin's stewardship in 1977...

...dollar Israel's legal tender...

...These securities are Israel's blue chips and the backbone of the pension funds' port folios...

...In addition, austerity will spell the end of cut-rate dollars...

...Begin won re-election hands down...

...But it is doubtful whether Likud's reign can survive beyond the next few months...

...And Shamir apparently had some appreciation of the benefit Likud would derive from having Labor share the public's wrath over the severe belt-lightening that inevitably lies ahead...

...Most Israelis believed that after the victory Aridor would adopt a more rational program...

...Thus the population was cushioned from the subsequent rise in inflation, and Begin's popularity soared...

...Once all their loose shekels had been disposed of, Israelis turned to selling stocks and bonds, nearly causing a crash in the market...

...Unless very substantial budget cuts are enacted soon, Israelis will infer that their leaders are incapable of truly asserting control and panic will again manifest itself...

...What did surprise many observers was the seriousness of the Likud-Labor discussions...

...their finding otherwise could cost Likud its power, too...

...He slashed taxes and tariffs on durable consumer goods and instituted effective subsidies on foreign currency, flooding Israel with imported color televisions, Japanese and American cars, and all the latest appliances...

...Yoram Aridor, it should be mentioned, will not be on the scene to shepherd the economy through its coming trial...

...The move is a desperate one, for by essentially converting an estimated $7.5 billion worth of shares into government bonds, the fledgling administration has assumed an obligation that may require more than bookkeeping tricks to meet...

...the economic portfolio as Begin's partner in the Likud, saw an opportunity to implement its longstanding belief in laissez-faire principles...

...As often happens in Israeli politics, the only beneficiary of the pressure to expand the government was the ultra-Orthodox Agudat Yisrael party, whose four votes are essential to Shamir's parliamentary majority...

...Economists of every stripe warned that the reasoning was cockeyed, and the Manufacturers' Association cried that the shekel's artificially high exchange rate was pricing them out of export markets-all to no avail...

...Practically all government controls were abolished except two: wages, salaries, government bonds and savings continued to be indexed to the cost of living, and subsidies were maintained on basic commodities and services...

...The populace saw it as another indication that the bottom of thebarrelwascloseathand, and bought more dollars...

...This seems to place Sha-mirandhisnew Finance Minister, Yigal Cohen-Orgad, in a no-win situation...

...It began as part of the world-wide economic crisis triggered by opec's tenfold increase in oil prices following the 1973 Yom Kippur War...

...The next step was even more dangerous: Investors begantoget rid of their shares in the country's major banks and financial institutions...

...Hooked on consumption, the voters backed Aridor as he drained reserves at the rate of $1 billion a year and increased the foreign debt by about $2.5 billion annually...

...Realizing that if the dumping were not checked the nation's financial network risked complete collapse, treasury officials met with officers of the major banks, formulating the rescue procedure that was approved by the Shamir Cabinet on October 11 and signed into law a week later...

...In the long run, of course, the success of the economic surgery will depend on the government' s ability to reduce public expenditures...

...Yet if by some miracle the cutbacks are approved and put into effect (despite past experience indicating that the former does not assure the latter), the voters will have to endure not only permanent increases in the real price of staples, but also a considerable drop in the subsidies on electricity, public transportation and other vital services...

...He quit on October 13 amid the outrage that greeted his proposal to solve the mess by making theU.S...

...Since in either case the value of the shekel would plunge, Israelis rushed to the banks to convert their money into dollars, Swiss francs and Deutsche marks...

...Despite the strong economic measures Shamir announced the day after assuming office-a 23 per cent devaluation of the shekel, 50 per cent cuts in basic food subsidies, a hefty hike in the price of gasoline, and a plan for protecting the value of bank stocks-his razor-thin coalition will probably be unable to carry out all the steps necessary to reverse Israel's deteriorating economic situation...

...PAINFUL OPTIONS The Prospects for Israel's New Government BY ELIAHU SALPETER Tel Aviv Nobody was surprised when the Cabinet that Israel's new Prime Minister, Yitzchak Shamir, presented to the Knesset at the end of the first week of October proved a "photocopy" of Menachem Begin's outgoing administration...

...and Shamir, as the price of keeping the Likud coalition together, had promised to restore most of the budget cuts that Begin had forced the Cabinet to accept just before his resignation...

...His successor, Yoram Aridor, started a veritable spending spree...

...Once attempts to form a national unity government with the Labor Opposition fell through, it was obvious that nochanges could be made without opening a Pandora's box of mutually exclusive demands in the narrow coalition where Shamir's Likud bloc is dependent upon a few small parties...

...Cheap imports, according to this notion, kept domestic prices down, thereby ultimately retarding inflation faster than they ate up foreign currency reserves...

...This is where matters stood last month when rumors began to arrive from the world's financial centers that international bankers were raising more than an eyebrow at Israel's outstanding loans...

...After an era of leading Israelis lo believe they can have their cake and eat it...

...A furious Aridor, hurrying home after attending the annual meetings of the World Bank and the International Monetary Fund and consulting with American officials in Washington, accused the media of precipitating the panic...

...thegov-ernment was printing more and more money to cover the budget deficit...

...The bank shares are to be underwritten by the government, although their return will be guaranteed only if they are held for a minimum of five years...

...To begin with, a serious, sustained reduction in the standard of living is impossible unless the government wins the cooperation of the General Confederation of Trade Unions, which Labor and the smaller Socialist parties still dominate...

...to alter the terms of its military assistance for the coming year: Instead of receiving $1.7 billion, half as a grant and half as a loan, Jerusalem would prefer $ 1.25 billion outright...

...Many economists feel as well that the shoring-up operation represents a de facto nationalization of Israel's banking system...

...While the Finance Ministry denied that a crisis was in the offing, statistics showed otherwise...

...The nation's economic reserves, on the other hand, dwindled, leading to the replacement of free-spending Finance Minister Simcha Ehrlich by dour, tightfisted Yi-gal Hurwitz-who in the space of a year managed to halt the decline and even began to reverse it...

...It seems that Labor Leader Shimon Peres does indeed suspect his party can at this point only return to power through the side door of a broad alliance...

...Third, and most important, with elections always on the horizon, Likud will certainly not want Labor to look like the defender of the workers and the poor...

...Nonetheless, the two groups' fundamental differences doomed the parley...

...exports had declined by 13.5 per cent compared to the previous year...

...Many families will then lose a large portion of their life savings, insuring that the next election will come much sooner than 1985, and that no paroxysms of nationalistic rhetoric will win it for Likud...

...Inflation continued to accelerate, approaching 150per cent...

...Aridor figured, probably correctly, that this arrangement would stem the erosion of Israel's international credit rating...

...Secondly, Shamir's own Herut Party has strong populistic leanings, insuring a backlash against "hurting the masses...

...Its taste for luxury notwithstanding, the public recognized that if the government did not soon bring an end to this fool's paradise, the economy would take a nose-dive...

...Hurwitz' approach, however, had a sharply negative effect on Begin's standing in the polls, and so some six months before thel981 election an alarmed ruling party tossed him out...

...By that time, though, the inflation rate had reached three digits, and his advisers had invented a theory of giveaway economics...