Israel's Toughest Times

...Two factors have created this tremendous shortfall: military spending and inflation...

...The absurdity of the present state of affairs was tellingly underlined by the so-called Darawshe Affair...

...The Government of National Unity has failed to end inter- and intraparty disputes...

...But under the best of circumstances the dispute will not be resolved quickly, so Mubarak's making it a stumbling block was tantamount to rejecting a meeting with Peres in the near future...

...Mubarak's third requirement—that Israel get out of Lebanon—was virtually a request for Syrian permission to see Peres, since Damascus and its Beirut government allies have been preventing movement in the current withdrawal negotiations...

...Direct conflict between the primary partners has been avoided because of Hussein's unwillingness to negotiate without preconditions, and the Palestine Liberation Organization's (PLO) refusal to change the paragraphs in its official Covenant demanding Israel's destruction...

...Shiite terrorism has thus replaced PLO terrorism...

...According to the Camp David treaty, border disputes should be resolved by direct negotiations...

...The gap in Israel's foreign exchange requirements increased to an estimated $1.3 billion in 1984, bringing its foreign account deficit to $5.3 billion—despite $2.6 billion in American government aid, and $1.4 billion of mostly nonreimbursable assistance from Jewish and other organizations...

...Likud accused Darawshe of treason and urged that a law forbidding Israeli citizens "to consort with the enemy" be applied against him...

...progress toward Palestinian autonomy along the lines Cairo contends were envisaged in the Camp David agreements...

...The symptoms of that long-festering disorder include a roaring domestic inflation that has reached an annual rate of 1,000 per cent, a growing government budget deficit and balance of payments deficit, and a mounting foreign debt...

...At the same time, it has rightly criticized the measures taken to date by Peres as not sufficiently stringent, and has made any stepped up support contingent upon confronting that reality...

...During the PLO's recent congress in Jordan's capital, he took off for Cyprus en route to Amman...

...Although this resembles Israel's declared position, the news of his trip set off a veritable political storm in the country...

...Another of Labor's declared intentions was to put practical content—such as trade and cultural exchanges—into the formal peace signed by Israel and Egypt...

...The forging of a coalition by Labor, Likud and a number of smaller parties has merely resulted in the diametrically opposed ideologies and politics of its two main components being put on the back burner, where they continue to simmer...

...While PLO spokesmen declared their readiness to send a special plane to bring Darawshe to the congress, Jordanian authorities refused to grant him an entry visa and he had to come home, mission unaccomplished...

...And operations in southern Lebanon have been costing Israel nearly $1 million a day, adding a significant drain on dwindling foreign-currency reserves that is contributing to the economic crisis...

...In trying to ensure that Arafat and Company do not again use the area to stage attacks, however, Israel has overstayed its welcome...

...Likud still rejects any strategy that would mean giving up Israeli sovereignty over the areas taken in the 1967 Six Day War that it refers to as Ju-dea and Samaria, and insists on the Palestinians there accepting a very restricted domestic autonomy...

...credits that financed Israel's military purchases after the 1973 Yom Kippur War now expiring, debt service is becoming a increasing burden...

...Moreover, the Shiites have become fertile ground for Khomeini-inspired religious and political extremism...

...The " cold peace" with Egypt has not thawed since Shimon Peres became Prime Minister...

...Taba, where Israeli entrepreneurs built a fancy resort hotel just prior to the Sinai withdrawal, is claimed by both countries...

...Any doubt about this was eliminated by his refusing a summit unless progress was achieved on the tougher issue of Palestinian autonomy as well...

...Arguments are never wanting, of course—notably the claim that big spending reductions would produce mass unemployment and social unrest...

...Labor, for instance, still wants to seek a dialogue with King Hussein of Jordan about some kind of peaceful settlement of the Palestinian question through territorial compromise on the West Bank...

...When Israeli troops crossed the border in the summer of 1982 the local Shiite population saw them as liberators, for the PLO had established a tyrannical "state within a state" there...

...Peres hoped to meet President Hosni Mubarak, but the Egyptian leader set three preconditions: the resolution of the dispute over Taba, a tiny area south of Eilat between the two nations...

...Freezing prices while the shekel is depreciating, though, means increasing subsidies on basic commodities, fuel and public transportation, inevitably requiring more new money to be printed...

...Combined with the immense deficit financing needed to sustain the government budget, the consequences have been threefold: Imported goods sell below their real value, the expanding volume of purchasing power obliges the ministry to allocate ever more foreign currency to imports, and Israeli products become too expensive to compete overseas...

...Defense expenditures—swallowing up roughly one fourth of Israel's gross national product, compared with 6.8 per cent in the United States—are running at $5.5 billion a year, much of it spent in foreign currencies for purchases abroad...

...Ultimately, this may enable the Israeli government to impose the thoroughgoing economic retrenchment it says it wants yet has seemed unable to achieve on its own...

...Eliahu Salpeter, a regular NL contributor, is a correspondent for Ha'aretz, one of Israel's leading newspapers...

...Next year the sums repayable to the United States on this account alone will nearly equal the amount of American economic aid...

...Furthermore, with the 10-year grace period on repaying the huge U.S...

...A highly embarrassed Labor leadership made frantic telephone calls to Darawshe in Cyprus, pleading with him to give up his plan and return...

...Washington has expressed a willingness to help put Israel's economy in order...

...Unlike his predecessor, Yitzchak Shamir, Peres is willing to admit that direct talks have failed and to take the next step...

...Everybody agrees that drastic budgetary cuts are the key to breaking the back of inflation—economists say $1.5 billion-$2 billion should be pared...

...But the very nature of a coalition-based government gives Cabinet ministers considerable power to protect their particular domains...

...Nevertheless, the nature of the discourse his aborted action triggered, not least among members of the Government of National Unity, seemed to place Jordan out of bounds, too...

...It soon became known that he had accepted an invitation to address the congress, and had not bothered to consult his party or the Foreign Ministry...

...In the end the controversy was resolved in typical Middle Eastern fashion...

...and failing even that, by international arbitration...

...The total external debt passed the $23 billion mark in 1984...

...Granted, the specific objective of Labor' s " Jordanian option" is to deal with Hussein rather than Yassir Arafat, the PLO chief reconfirmed in Amman, as Darawshe in effect would have been doing...

...As Darawshe later explained, he simply intended to urge the PLO representatives to abandon their "military solution" to the Palestinian problem (terror and war, in other words) and accept negotiations instead...

...Were the Reagan Administration to exhibit similar realistic determination in trying to help solve the troubles on the West Bank and in Lebanon, the worst of times here could indeed become better times...

...Peres and his colleagues are attempting to break out of this vicious circle with a three-month freeze on prices, wages and taxes, and by cutting hundreds of millions of dollars out of the budget...

...And all these major problems are being overshadowed by the country's long-running, seemingly intractable economic crisis...

...and the withdrawal of Israeli troops from Lebanon...

...The Israeli Army remains bogged down in southern Lebanon...

...Meanwhile, hostility to Israel has been growing in the Shiite districts of southern Lebanon...

...Abd el-Wahab Darawshe is an Arab member of Labor's Knesset delegation...

...The brouhaha subsided as fast as it arose, yet not before raising serious concern about the extent to which the association with Likud has hobbled Peres in all matters relating to the Palestinians...

...In their efforts to throttle the second curse of Israel's economy, the spiraling inflation, all Israeli finance ministers have sooner or later tried both to subsidize basic commodities and to artificially slow down the devaluation of the Israeli shekel vis-a-vis the dollar...

...failing that, by third-party mediation...