Israel's economic problems extend beyond picket lines
The downtown stores in Israel's capital are unusually crowded this Monday. Ironically, this signals another bad turn for Israel's economy.
The reason for the sudden surge of window-shopping: a 48-hour strike by one-third of the nation's labor force. Presumably many of the strikers - 400,000 salaried public service workers - have nothing better to do than go shopping.
The shutdown is indicative of troubles throughout Israel's economy. Some are due to outside factors, like the downturn in the world economy. But domestic political conflicts have made them harder to solve.
And these difficulties - such as an inflation rate of more than 130 percent and a worsening balance of trade - are important reasons why Israel is anxious to see an improvement in the terms of American economic and military aid.
Conflicts over public-sector wages are an element of Israel's ongoing struggle to deal with triple-digit inflation, which has its roots in almost a decade of high government spending dating back to the October 1973 war. It was exacerbated by the high cost of peace with Egypt - which forced extensive military and civilian redeployment from the Sinai to the Negev desert and caused sharply higher energy costs when the Sinai oil fields reverted to Egypt.
But opponents of the government accuse the Likud governing coalition of having fueled the current inflationary cycle by a 1981 election-year policy of printing money to raise subsidies on food, fuel, and transport, while cutting taxes on luxury items like cars and color television sets.
While higher subsidies kept prices down artificially - inflation dropped to 105 percent in 1981 - they spelled trouble. ''The subsidies involved huge increases in government deficits,'' says Tel Aviv University economics Prof. Eitan Berglass, ''and the government reversed itself too late.''
Meanwhile, the war in Lebanon this summer has added to the economic burden, but less so than in previous wars. This could change if Israeli involvement drags on or if the situation worsens. Israel lost little of its expensive hardware (planes and tanks, for example). And a $500 million budget increase, largely for war expenses, will be covered by a 4 percent war tax on income, budget slashes, and new purchase and travel taxes.
But Finance Minister Yoram Aridor's plan to bring inflation down to 85 percent has not had easy sledding. The plan reflects a Treasury view that inflation has been largely caused by repeated devaluations of the shekel and by the sophisticated indexation system that links private- and public-sector wages to the cost-of-living index. Indexation has made inflation relatively painless for most Israelis.
The Aridor prescription: monthly rather than quarterly cost-of-living allowances without adjusting tax brackets, thus eroding net salaries of wage earners. Currently tax brackets are adjusted. The Histadrut labor union federation has balked - and struck the public sector. It also wants wage adjustments based on 1981, the election year when Mr. Aridor so generously boosted wages and subsidies, rather than the Finance Ministry's lower base of 1980-81.
The strike also reflects the sour relations between the trade union movement - still controlled by the opposition Labor Party - and the government. The union suspects that the closure of the national airline El Al - now in receivership - was meant as an object lesson to workers that they will have to accept lower wages and staffing than are now included in many existing contracts.
Many businessmen are also unhappy. They fear the new policy of slowing devaluation of the shekel will accelerate the pattern of rising imports and falling exports.
Israeli exports have fallen victim to the sagging international economy, especially given the weakening of European currency against the dollar, in which Israeli goods are quoted. Israel has also been hit badly by the slump in the diamond trade - Israel is a major exporter of finished diamonds - and by a sharp decline in tourism.
There is also concern here about the terms of United States military and economic aid. ''The problem is not only the amount, but dealing with the structure so debt service is not an impossible burden,'' said a Finance Ministry official.
With a foreign debt of $18.4 billion at the end of March 1982, Israel will pay out $3.6 billion this year in capital and interest on long- and medium-term loans. This year $910 million will go to the US alone, an amount exceeding the $ 785 million in US economic aid received in 1982.
At present, all of US economic aid to Israel is in grant form and about 40 percent of military aid is forgiven annually. The Reagan administration wants to keep the military formula the same, but return to the two-thirds grant and one-third loan formula for economic aid that prevailed up to fiscal 1980.