Suddenly, Alarmingly Poorer

After the blood and tears of war, Israelis, to reverse Churchill's famous aphorism, were asked last week to sweat in the service of their nation. Faced with declining foreign reserves and the prospect of mass unemployment once the country can no longer pay for raw materials to feed its factories, Premier Yitzhak Rabin's government imposed the stiffest austerity program that Israel, or almost any other nation, has ever seen.

As a starter, the Israeli pound was devalued an astonishing 43%, the eighth devaluation in 26 years. Imports of 29 luxury items, including autos, were banned for six months, and import taxes on 39 other luxury items were raised 10% and 20%. A six-month moratorium on the construction of all public and luxury buildings, imposed last July, was ex tended for another year. In an effort to discourage foreign travel, both the travel tax and the tax on foreign air fares were raised significantly.

Lower Subsidies. The poor were at least partially protected by increased government welfare benefits, but Israel's middle class was severely hit. As a result of devaluation and lower govern ment subsidies for basic commodities, prices of most items last week were in creased anywhere from 35% to 200%. The cost of sugar, which already was 21.60 per lb., tripled, and milkwent up 60%. Egg prices jumped 64%, bread 100%, meat 35%. Bus fares will rise 60%, and gasoline 64%, to $1.86 per gal. Fuel oil for industry zoomed up 117%. The standard of li ving of most middle-class Israelis, as measured by prices and income, overnight dropped about 10%.

The government waited for the banks to close last Friday noon before announcing the austerity program. Almost immediately after Finance Minister Yehoshua Rabinowitz told the nation the bad news in a radio broadcast, riots broke out in the rundown Hatikva section of Tel Aviv. For three nights mobs of hundreds of people roamed through the streets stoning cars and policemen and looting shops. Orderly demonstrations took place in Haifa, at Ben-Gurion International Airport outside Tel Aviv, and in Ashdod. More ominous for the government than the demonstrations was the action of the 1,100,000-member General Federation of Labor. Despite entreaties from the government, it demanded that workers be fully compensated for loss of income, an action that would certainly destroy the austerity program at the beginning.

The government faced a Hobson's choice: austerity or economic collapse. The October war cost the country $7 billion, roughly equal to its gross national product in 1973--the U.S. equivalent would be $1.3 trillion. Moreover, nearly half of the $8.44 billion budget still goes for defense costs. The inflation rate for 1974 is about 35%. At the same time, economic aid from Washington ($1,250 million in 1974) is $500 million less than anticipated, and help from U.S. Jews has dropped off by a projected $225 million this year. Israel must now depend on its own resources more than before.

In the opinion of most Israeli economists, the government should have acted much sooner than it did. Yitzhak Taub, chairman of the Israeli Securities Authority argued that the best time for austerity would have been right after the October war ended. Now, he says, "distortions had to be corrected. Because of our subsidies we were selling sugar at such a low price that the value of sugar in candies exported to England was worth more than the price of the candy."

Premier Rabin, who has been in office since June, probably would have acted faster if he had not been handicapped by his dependence on splinter parties for his unstable, one-vote majority in the Knesset. Only in the past few weeks, after gaining the support of the right-wing National Religious Party, did he feel that he had sufficient support to move. His program was widely praised by the press, and according to a quick telephone poll by Tel Aviv's Dahaf Agency, 51% of the voters approved Rabin's measures--surprisingly high support considering the sacrifices involved.

"The real meaning of the increase in prices is that we--all the citizens of Israel--have become poorer," Finance Minister Rabinowitz told the Knesset. "There is no one to compensate us for these cost increases, and the burden must inevitably fall upon us."

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