Is US responsible for Israel's inability to form a government?

Ever so slowly, Israel's feuding politicians are coming to agree that 400 percent inflation, a huge foreign debt, and a fall in state reserves equal economic crisis.

But while economic experts and political pundits foresee serious long-range perils in the situation, it is still an open question when the powers that be will get around to doing something about it.

There are two reasons - one foreign, one domestic - to suppose it may be hazardous for observers to hold their breath on that score.

The first is the ''American factor.'' The US government is now providing annual aid of more than $2 billion. And though Israel suspects that sooner or later the US may press its aid beneficiaries to put their economic house in order, the parallel assumption is that no US administration would do so in an election year.

Out of Israel's foreign debt of some $23 billion, the largest chunk is owed to the US government.

At home, meanwhile, Israeli politicians are getting nowhere fast in efforts to piece together a new government on the basis of last month's inconclusive election.

The incumbent Likud Party, though edged out by the left-leaning Labor opposition at the polls, still hopes it will be the one to form a new coalition cabinet. This is because even Labor fell well short of a majority in parliament.

It is still conceivable that a ''national unity'' government including both Likud and Labor will be formed, with each sharing the onus of a logically necessary economic austerity program. But both disagree on who should head such a set-up.

And at least some leaders in Labor, arguing that Likud's seven-year tenure is what produced the economic mess in the first place, still seem to feel that a unity regime would unfairly cushion the incumbent Cabinet from reaping the unsavory political returns from the economic crisis.

The election - held a year early following parliament's vote of no-confidence in Likud Prime Minister Yitzhak Shamir - went a good way toward negating the initial austerity measures undertaken by him. Starting late last year, Likud moved slightly to shave automatic ''linkage'' between prices and wages. This system dates from Labor's earlier three-decade dominance of Israeli politics and what has in effect institutionalized inflation in the past few years.

Other roots of Israel's economic problems include a military budget claiming fully one-third of state outlays. Also, Likud's free-market economic approach has undone Labor-era restrictions on foreign currency dealings, and fueled a surge in consumer imports.

The country's overall payments deficit, always running at least around $2 billion, had soared to $5 billion for 1983.

Late last year, Likud made a move to begin reversing these trends. It began a series of hefty devaluations in the country's extremely overvalued currency, the shekel. Getting US dollars was made a bit tougher, in part by imposing limits on the amount of hard-currency made available for Israelis heading abroad.

The Shamir government also made some halting moves to cut the government budget, despite resistance from individual ministers whose happiness was key to maintaining the coalition's narrow parliamentary majority.

But in what local news media promptly dubbed ''election economics,'' the government put a brake on the austerity process during the campaign period.

Since the election, the national bill for that exercise has come due. Inflation is surging anew. The country's hard-currency reserves dropped a record of some $700 million in July. And in another record, the authorities printed an unprecedented $360 million shekels to pump into the economy before election day.

Shortly after the election, Likud's caretaker Cabinet closed Sinai-sized loopholes in the limitation on purchasing dollars for travel abroad. The government also tightened rules on imports. And a few days ago, the Finance Ministry in effect slashed future inflation ''linkage'' payments to workers by stopping the practice of adjusting their tax brackets to exclude the bonuses. The national trade-union federation, dominated by Labor, promptly hinted at the possibility of protest strikes.

There has also been a post-election freeze on new hiring by the government.

Yet if the recent behavior of foreign banks toward Israel is any indication, none of these moves amounts to a convincing package of serious austerity measures.

''Financial institutions want to see a trend before they lend,'' explains Rafael Benvenisti, the economist who heads the Israeli government's Investment Authority. ''They read about the 'post-election' political situation here and don't see any successful measures....''

He and other economists confirm that the Israeli government has recently had to agree to increased interest terms on foreign loans. In essence, say economists, Israel is now classed with other major world debtors in Latin America or East Europe on the world credit market.

At home, Mr. Benvenisti argues that mere economic logic may sooner or later threaten Israel's long record of nearly full employment - a development that could exacerbate political tension.

At a minimum, a cutback in government expenditures, imports, and domestic consumption levels is assumed as part of any overall new economic policy package.

For political figures - like onetime Labor Party spokesman Meron Medzini, the most worrisome implications of a delay in such measures may be political. He notes that Israel's close alliance with the US has always hinged on the concept that the Jewish state is the region's one ''stable democracy.''

''But the danger is that the US will look at Israel and say, 'If your economy will collapse, you are no longer a democracy and therefore all our strategic considerations are wrong.' ''

For Benvenisti, this seems unlikely at least until the US elections are past. And he argues that the ''American connection'' has in fact had a debilitating effect on Israel's approach to the economy.

''There is always the belief, among the public and politicians, that no matter how bad things get, somebody - basically, the US - will come to our aid. The idea is 'If you have the bank behind you, who cares?' ''

But he and various other economic experts do expect that any US administration after polling day will want to impose conditions like those of the International Monetary Fund for speedier austerity moves on future aid.

This, too, may have political implications.

Any major government budget cut, for instance, would seem unlikely to spare expenditures on two politically controversial fronts that claim huge outlays.

These are the festering war in Lebanon and the implanting of Jewish settlements among the majority Palestinian population of the occupied West Bank of the Jordan River.

In the Arab world, disappointment over the Labor Party's failure to defeat Likud convincingly in the election has been tempered only by the hope that the Israeli economic crisis will indeed force changes in Lebanon and West Bank policy.

But independent political analysts in Israel doubt whether a truly significant change - that is, one that might help break the Arab-Israeli diplomatic deadlock - is in the cards.

As for Lebanon, virtually all Israeli politicians agree on the need to find a surrogate force to facilitate a reduced Israeli military profile there. The economic crunch might push up the timetable, but not radically, since no Israeli government wants to risk a pullout before ''alternative security arrangements'' are possible.

On the West Bank, a Likud-era proliferation of Jewish settlement is nearly complete in any case. The name of the game now is to move greater numbers of settlers into the outposts. Labor - on the still chancy assumption it manages to form a government - might indeed like to withhold most funds from this enterprise.

But the inconclusive election result means that any coalition Labor manages to form would necessarily include political parties insistent on the need to hold on to - and settle - the West Bank.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.




Save for later


Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items


Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items


Failed to save

You have already saved this item.

View Saved Items