Tighter Belts

Peres starts with austerity

Perhaps it was the honeymoon atmosphere, or perhaps, as one senior Israeli official said, it was simply "enlightened self-interest." Whatever the reason, Israel's freshly installed unity government got down to business quickly. At its first Cabinet meeting last week, the coalition of Labor and Likud, the country's two major political groups, decided to cut this year's $23 billion budget by $1 billion and devalue the shekel by 9%. That latter move, which dropped the currency's value from 354 shekels to the U.S. dollar to 397, was meant to stop a run against the currency that was dangerously draining the country's foreign reserves.

In an economy suffering from 400% annual inflation, the bold austerity measures were likely to be only the first of many. Nonetheless, the moves marked an auspicious start for a government that took two months to form. Said Prime Minister Shimon Peres, the Labor Party leader: "We have to turn first of all to ourselves, control our standard of living, reduce our expenses, and make Israel self-reliant from an economic point of view."

Peres was speaking to the Reagan Administration as much as to the Israeli citizen. The Prime Minister--accompanied by Foreign Minister Yitzhak Shamir, the Likud leader who under the terms of the coalition agreement will swap jobs with Peres after 25 months--is scheduled to meet with Reagan in Washington on Oct. 9. Anticipating that the election-year U.S. Congress will approve a record $2.6 billion in economic and military aid to Israel for fiscal 1985, which starts Oct. 1, Israeli officials will ask that Washington give them $1.2 billion of that amount immediately to meet interest payments on the national debt. In addition, the Reagan Administration expects Peres to seek up to $1 billion in new aid by drawing up a slimmed-down budget, deficit and all, and then asking Washington to help the Israelis make ends meet.

State Department officials have insisted, however, that the Israelis must first tighten the country's belt several notches. In a 90-min. session with Finance Minister Yitzhak Moda'i last week, U.S. Ambassador to Israel Samuel Lewis abandoned his mild-mannered style to deliver a stern lecture on frugality. "You are going to have to drop your standard of living and live within your means," he said. Moda'i seemed to take the injunction to heart when he described the Lewis get-together later to a group of Israeli manufacturers. "This was almost the motto of the meeting: 'Only you can help yourselves,'" Moda'i said. "You know what? I agree."

Mottoes aside, the Israelis still have far to go. In spite of the vote to cut the budget, Cabinet officials must determine where the $1 billion in savings will come from. Although each minister is expected to recommend trims in his own department, some officials contend that fiscal realities leave them little flexibility. Education Minister Yitzhak Navon, for example, faces a 12 1/2% budget cut and may have to scrap benefits like free high school education.

The key to economic asceticism rests with Histadrut, the 1.5 million-member labor federation that represents 90% of Israel's entire work force. Peres would like the union to accept a wage-price freeze as well as a 10% rollback in the annual cost of living allowances paid automatically to Israeli workers.

Though Histadrut leaders remain lukewarm about both proposals, they were noticeably impressed when Peres took part in negotiations with the labor group last week. It was one more indication that the coalition government, despite its contentious origins, might just have enough gumption to tackle the country's problems after all.