Israel's dizzying inflation: indexed incomes help some

Two merchants sat on chairs outside their adjoining furniture stores this month playing backgammon while a third merchant kibbutzed. There were no customers to disturb them.

The merchants on Herzl Street in downtown Tel Aviv were trying to cope with an inflation rate running above 130 percent annually by hanging on. More than 500 merchants had given up coping in the Tel Aviv area alone in the past year, closing their businesses. According to the local Chamber of Commerce, another 120 wholesalers and importers have done likewise.

Some of the businessmen have invested their money in the securities market. Others have salvaged the capital they could and emigrated. Those who remain in business have had to run a treadmill on which income is not sufficient to replenish inventory because of prices that climb every week.

"I once thought I understood business," said one of the backgammon players. "Today even a professor couldn't understand it."

The most astonishing aspect of the inflation, however, is that the country is still coping with it at all, and doing so pretty well. The principal reason is the automatic linkage of salaries to the cost-of-living index. The linkage covers 80 percent of the index rise and is adjusted every three months. Furthermore, the redemption price of bonds is fully linked to the index and thus offers a secure shelter for capital.

If 130 percent inflation thus does not mean being dragged behind a runaway horse, it does mean a steadily binding vise as 80 percent linkage fails increasingly to keep up with prices. Businessmen are often harder hit than wage earners by the fall in purchasing power.

"I can't get divorced because of inflation," says Rachel, a switchboard operator in Jerusalem. "My husband and I have agreed on terms and we've even gone to the rabbinate to begin divorce proceedings, but because of price he can't get apartment to move into. One of the rabbis told us, 'Getting divorced nowadays is a luxury.'"

Isscher Elbaz, a factory maintenance chief with five children, lives like most Israelis on his overdraft. "My salary used to get me through the month. Now I'm already on overdraft by the 10th of the month."

According to Israel's Central Bureau of Statistics, real wages fell 9 percent last year. Despite this, the normally feisty unions have been relatively quiet in view of the general economic situation.

"I think five times before I drive my car," says Shmuel Meyer, a computer analyst. "I cut my family's hair and I buy food in quantity. There was a sale on canned grapefruit a few weeks ago and I bought 10 cans, not that I like grapefruit very much."

Although beating the income tax authorities is a perennial sport, inflation has lent the game a sense of urgency. "My psychiatrist refuses to take checks anymore," says a secretary. "He wants cash and he wants it linked to the exchange rate of the dollar."

When she divorced her Israeli husband two years ago, Marsha Cooper, an American immigrant, left the comforting embrace of a communal kibbutz for the cold realities of the city, where she found work as a copy editor. "I work overtime and I do translations as a free-lancer as well. All in all, I get by but not by much. My parents sent me money for a car, but I've driven it only about 10,000 miles in the last two years because of the price of gas [more than

Moonlighting, like overtime, has become a necessity for many Israelis. A recent surprise nighttime inspection at the main studios of Israel Television found two technicians who were supposed to be maintaining equipment asleep on cots. The report describing their dismissal said one of them worked by day as a lawyer. Whether he was a lawyer moonlighting as a technician or the other way around was not clear.

Housewives have had to cultivate all their instincts for frugality in order to keep their families' heads above water. "We have meat just once a week now, and it's chicken," says Henrietta, whose husband had a used-car business in Toronto before coming to Israel 10 years ago. "We didn't go away for a vacation last year and I don't see how we will this year. I used to be embarrassed if the kids' gym clothing was torn a bit, but I'm not now. But I can't say our way of life has changed dramatically. We're straining, not starving. We just hope things get better."

Economists have warned that unless inflation does get better, it may get out of control. Prof. Zvi Zussman, deputy director of the Bank of Israel, said last month that the economic factors preventing three-digit annual inflation from becoming three-digit monthly inflation were very weak. "They can give way beneath even small mistakes or unwise decisions."

That dour thought is being left by the average Israeli to furrow-browed economists who get paid for worrying. "It's rough, but it was rougher in the past," says Issachar Elbaz, who lived through the severe austerity of Israel's early years. "We'll get through this, too."

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