Arms and the Budget in Israel

...Clearly, the Jewish State's heaviest economic burden is the repayment of principal and interest on its foreign and domestic debt...

...That, Shomron believes, is the only answer to the growing pressure to reduce defense costs because of Israel's critical economic situation...

...This would seem to lessen the immediate danger of a Syrian attack and give Israel the opportunity to carry out the reorganization advocated by General Shomron...

...Shomron also openly argued that building the Lavi aircraft —which has become almost an article of faith among many Israeli politicians —is a waste of money the country cannot afford...

...The banks, meanwhile, continued to extend credit to the indebted individual farmers...

...The economic picture would have been a much better one had the government taken a tougher stand on austerity...

...The next big item is, of course, current military expenditure, eating up roughly one-fifth of the budget...

...At best, there will be consolidation of the present relative price and interest stability, which could serve as the foundation for true expansion in 1988-89...

...The catch is that Israeli governments have been notoriously unsuccessful in making the population consume less and produce more...

...This ballooned on two occasions—at the time of the Yom Kippur War in 1973 when Israel received enormous quantities of armaments from the United States to replace its losses and modernize its defenses, and in the late '70s and early '80s when the new Likud government's economic liberalization policies started a huge consumer spending spree, financed largely by fictive paper profits on the stock exchange and heavy borrowing abroad...

...Moshe Levi, who is about to leave the job, reportedly is planning to run for mayor of Jerusalem if and when Teddy Kollek quits next year...

...The cloud may have a silver lining, though: Numerous experts believe the shake-out was long overdue and is vital to putting agriculture on a healthier footing...

...But the Likud-Labor government is an unnatural coalition that could break up any day...

...Thus two other security related matters have been drawing far greater attention: The appointment of a new military chief of staff, and the implications of the economic crisis in Syria...

...As the parliamentary and public debate concerning the new budget went into full swing, additional unpleasant realities that were generally known yet not fully appreciated came to the forefront...

...Much more serious is the situation of the mosftavim, smallholder villages where each farmer has his own land but the selling of the produce as well as the purchasing of seeds, fertilizers, machinery, and implements is done through the farmers' cooperative...

...Consequently, while inflation was kept within an annual rate of 20 per cent last year, it has been accelerating of late...

...CHASING MIRACLES Arms and the Budget in Israel By Eliahu Salpeter Tel Aviv With the halting of the Iranian advance on Basra, the probability of a major Iraqi setback in the war that has been going on for almost seven years has receded...

...An overall picture of the economy can perhaps best be obtained by looking at the elements of the $24.5 billion budget...

...The breakdown is as follows: debt repayment 41 per cent, defense 21 per cent, subsidies of all types 19 per cent, government salaries 9 per cent, investments 5 per cent, reserves 3 per cent, etc...

...He has charged that under General Levi the Israeli Army has become mired in routine, instead of developing innovative solutions to emerging problems...

...Only about 50-odd kibbutzim are in deep debt, and their well-off counterparts are ready to provide guarantees enabling the banks to extend existing loans to those having repayment difficulties...

...The expectations for a dramatic resurgence of economic growth now appear premature...

...Defense Minister Rabin disclosed that according to the latest information, Syria's severe economic crisis and budget shortages are obliging a reduction of its land forces and the mothballing of a portion of its armor...

...Finally, the banks said stop and suddenly there was no money for feed and fodder—neither for the farmers in debt nor for those whose village coop accounts were in the black...

...But the high hopes of some fiscal optimists—including Finance Minister Moshe Nissim—that the 1987-S8 budget would open a new page in Israel's economy have failed to materialize...

...Since almost two-thirds of the $24.5 billion is therefore earmarked for items that cannot be substantially reduced, any meaningful cuts must come from the remaining third covering health, education, welfare, road construction, and other essential civilian services...

...The good ones were sinking with the bad ones...

...This sector has experienced what might be called a double-default...

...More and more analysts here are convinced, though, that over the long run the odds are in Teheran's favor: Iraq will either lose or manage a stalemate, but it is unlikely to win...

...This has revived some debate about the wisdom of Israel helping Iran...

...To an extent unusual even among top Israeli officers, he can be outspokenly critical ?f his superiors...

...The new chief of staff, General Dan Shomron, captured world headlines 12 years ago as the young colonel in charge of the Entebbe hostage rescue operation...

...The government predicts this will continue in the first quarter of 1987, and then there will be sharp decline, so that 1987 as a whole should average out below 20 per cent...

...The total indebtedness of the kibbutz movement—consisting of 280 voluntary collective settlements that contain 3 per cent of the population and account for 10 per cent of the gross national product—is within a manageable $600 million...

...Two years ago, facing a three-digit runaway inflation, the government, the trade unions and the businessmen all got really scared...

...Most of the arguments, however, have already been exhausted (see "The U.S.-Israel-Iran Triangle," NL, November 3,1986...

...Similarly, a predicted 5 per cent growth in exports should provide for a small reduction of the trade deficit...

...So even if everything goes as planned, it will be a bitter year for many farmers in Israel...

...It has been estimated that the total debt of all moshav farmers in the country reached somewhere between $2 billion and $2.5 billion...

...Many individual farmers fell heavily in arrears to their marketing coop, until the volume of debts and debtors often exceeded the total credits of the village...

...It is anticipated that industrial production will go up by 8-10 per cent and that overall GNP will increase by 4-5 per cent, permitting a very narrow 1-2 per cent net accumulation after an expected 3 per cent rise in consumption...

...Moreover, given that the process began during the years of triple-digit inflation, interest rates were sky-high and old debts multiplied rapidly before new ones were added...

...there was temporarily a genuine freeze on wages and prices and a grassroots cutback of consumption...

...The late General Moshe Dayan, Defense Minister Yitzchak Rabin, Cabinet members Chaim Bar-Lev and Motta Gur, and right-wing Tehiya Party Knesset member Rafael Eitan all were chiefs of staff earlier in their career...

...His approach received indirect support recently from an unexpected quarter—Damascus...

...The result was that farmers who had long been in the red went on buying not only food for the family and fodder for their animals, but also new machinery and trucks or tractors...

...Primary among these was the fact that Israel's agriculture is in trouble, some of it on the verge of bankruptcy...

...The budget, totaling $24.5 billion, indicates that the next fiscal year will largely be a holding operation—trying to maintain the achievements of the initial 1985-86 belt-tightening that, unfortunately, has loosened up considerably in the past several months...

...Exactly how this miracle will be wrought despite a 15 per cent hike in fuel prices that has already gone into effect is not quite clear...

...Nonetheless, several hundreds, if not thousands, of farms have proved such complete failures that they cannot be bailed out and will have to be liquidated...

...Alas, the dramatic success of that joint effort created a false sense of easy accomplishment, and in 1986 the sales of such items as television sets, washing machines and videos again increased sharply...

...Euahu Salpeter, a regular ?L contributor, is a correspondent for Ha aretz...

...In these circumstances the government could not avoid intervening urgently with guarantees that have allowed the banks to spread out loan payments and with subsidies that have brought interest rates down to a level the farmers can bear without again going bankrupt...

...And both partners, being constantly aware that they might find themselves facing premature elections, feel this is no time to cut back on the standard of living of the voters...

...Naming a chief of staff is a number one issue in Israel, because of the Armed Forces' vital importance to the country's survival, and because the post has frequently become a stepping-stone to apolitical career...

...In other sectors the outlook is brighter...

...When Shomron takes over in April, he is expected to begin a major reorganizationofthe military: He wants a smaller, better trained fighting force equipped with "smart weapons" and other stateof-the-art armaments...

...Shomron is widely considered a brilliant, imaginative and occasionally maverick officer...