Israel: The Economic Crisis

As Israel's Shamir government moves towards elections scheduled for July 23, it is having to cope with a chronically overheated economy that is close to going out of control.

Since last October, when Mr. Shamir replaced Menachem Begin as prime minister, the government has been trying to cool things off with a belt-tightening policy recommended by the International Monetary Fund. Measures have included a 70-percent devaluation of the shekel, cuts in spending and monetary restrictions.

The measures have so far had little if any impact on such problems as runaway inflation, the yawning trade deficit, and the spiralling national debt. However, they have been just stringent enough to provide more anguished protests from voters.

The inflation rate was 190.7 percent and rising at the end of 1983. Official cost-of-living figures for January and February now show prices heading upward at an annual rate of more than 350 percent. The foreign debt, highest per capita in the world, has reached $24 billion—20 percent more than the country's GNP. Tax revenues are falling, and the government is printing money to make up for the shortfall. The balance of trade improved modestly for the first few months but deteriorated during February—the most recent month for which statistics are available.

Meanwhile, real wages are declining, and the government expects unemployment to triple this year.

The Jerusalem Post, commenting March 5 on the shot in the arm given to the economy by recent boosts in U.S. aid to Israel, said:

"If the extra aid is taken by the (Israeli) Treasury as a license to convert it into shekels for domestic spending or to go on printing cash to the tune of $200 million per month, as it has been doing for three months running, the windfall from the U.S. will soon be gone with the wind."