Unhatched Egg

Shamir gets off to a shaky start

It was not an auspicious beginning. No sooner had Yitzhak Shamir been sworn in as Israel's seventh Prime Minister than his new government was engulfed in an economic crisis. Four days later, Finance Minister Yoram Aridor, a holdover from outgoing Prime Minister Menachem Begin's Cabinet, became the government's first casualty. With the opposition Labor Party calling for a vote of no confidence, there were serious doubts as to how long Shamir's fragile majority would hold together.

The coalition had not been easy to forge. Although the Herut Party had nominated Shamir to succeed Begin as its leader on Sept. 2, it took Shamir nearly three weeks of wrangling to win the support of the small parties whose backing had been essential to Begin. As the haggling went on, the economic crisis deepened. The Bank of Israel announced that the country's foreign debt had increased by $550 million, to $21.5 billion, in the first six months of 1983 and that foreign currency reserves had dropped for the third straight month to a mere $230 million. The bad news prompted panic selling of shekels and buying of foreign currencies, especially dollars. Early last week the government was forced to close the Tel Aviv stock exchange to stem the heavy sales of shekels.

As he presented his Cabinet to the Knesset, Shamir pledged to continue his predecessor's policies. Labor Party Leader Shimon Peres immediately went on the offensive. What would continue, he said, would be the "twofold tragedy" of the Begin government: economic disaster and the war in Lebanon.

On the first evening after his swearing-in, Shamir summoned his Cabinet for an emergency session on the economy. The meeting did not break up until 6:30 the following morning. The result: a 23% devaluation of the shekel and a sharp cut in food subsidies, meaning an average price increase of 50% on basic items like bread, milk and meat. Israelis rushed to stores and supermarkets to stock up before the prices took effect, and long lines formed at service stations in anticipation of a 23% hike in gasoline prices.

Two days later the Tel Aviv daily Yediot Aharonot broke the news of an even more drastic change. Finance Minister Aridor, the paper said, was preparing a plan under which the Israeli economy would be linked to the U.S. dollar. Everything, including wages, prices, pensions and interest, would be expressed in dollars, thereby eliminating the indexing that has fueled Israel's triple-digit inflation rate.

The disclosure caused a storm of protest. Geula Cohen of the Tehiya Party, a coalition member, said the next logical step was to put Abraham Lincoln's picture on the shekel. Other members described the "dollarization" plan as a blow to Israel's sovereignty that would make the country in effect the U.S.'s 51st state. Within hours, Aridor offered his resignation.

Saying he would ask for a no-confidence motion this week, Labor Leader Peres charged: "The country has never been in the hands of such an incompetent group with such dangerous ideas." Shamir sought to distance himself from the discredited dollarization scheme, calling it an "unhatched egg." His government's survival may now depend on whether he can persuade someone of stature to take on the thankless task of assuming responsibility for unpopular economic measures. Said a Likud Party member: "What we need is a knight in shining armor, and we do not have one who is suicidal." This file is automatically generated by a robot program, so viewer discretion is required.