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In Israeli Election, Economic Woes All But Forgotten

May 29, 1996

JERUSALEM (AP) _ Prime Minister Shimon Peres and his challenger Benjamin Netanyahu don’t agree on much _ but the need for some economic reform in Israel ranks as important on both of their lists.

Few would know that, however, from following the campaign ahead of today’s much-watched election, with talk of peace and security overshadowing discussions of economic policy.

But economists believe issues pertaining to the economy _ from cutting the budget to controlling inflation _ will resurface once the election is through and the winner can again focus on more than just politics.

``Whatever government comes to power, they do want to get inflation down and they do need to turn off the tap of the drain on reserves,″ said Peter Medding of Hebrew University.

Voters today will be making what could be the most important decision in Israel’s history _ whether to continue Prime Minister Shimon Peres’ peace policies or to elect challenger Benjamin Netanyahu who opposes further land-for-peace deals with the Palestinians.

While the peace process has dominated the campaign, discussions about the economy have been virtually non-existent. But economists predict that the winner will be quick to spend some time focusing on economic reform.

Peres and Netanyahu both aim for European-style liberal free-market economies. Although Israel’s economy has grown 40 percent in the past six years _ it still has a way to go.

Inflation is projected to reach 14 percent this year, well above the 3 percent to 4 percent level of most industrialized nations. In addition, the Labor government’s much touted plans to privatize the huge public sector seem stuck in neutral and the tax burden tops a whopping 40 percent of the gross national product.

The overvalued shekel is also an issue, mainly because it encourages imports and undercut exports, and in turn, created a record $10 billion trade deficit last year.

``All these problems reflect a government that is hugely dominant in the economy, a bloated public sector that’s been getting pay hikes and expanding in size especially in the past few years, and government handouts to many sectors,″ said Zeev Golan of the independent Division for Economic Policy Research.

``What they should be doing is cutting the budget, privatizing, selling massive amounts of land, reducing the tax burden, and ending our dependence on foreign aid.″

Netanyahu has said his government will quickly sell off 50 of the 85 government-owned companies.

For Peres _ who scored high points as prime minister from 1984-1986 for reining in hyperinflation _ the key is tied into his vision of a peaceful Middle East. Peace, he says, brings investment.

In its pre-election editorial published Tuesday, Israel’s only financial daily said that while Israelis face stark choices on peace and security, the parties were virtually identical on the economy.

``Labor and Likud do not want to discuss their plans if and when they win,″ the paper said. ``But one thing is clear: both parties are considering cutting the budget immediately at the start of their term.″

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