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In Israeli Election, Economic Woes All But Forgotten

May 29, 1996

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

Few would know that from following the campaign ahead of today’s much-watched election, which sees voters choosing between Peres’ peace policies and Netanyahu’s pledge to stop trading Israeli land for peace with Arabs.

But economists believe money issues _ from cutting the budget to controlling inflation _ will resurface once the election is through and the winner can 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.

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 of most industrialized nations. The Labor government’s much-touted plans to privatize the huge state-run 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 undercuts exports, contributing to 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,″ Golan said.

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 a peaceful Middle East. Peace, he says, brings investment.

In its pre-election editorial Tuesday, Israel’s only financial daily newspaper 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,″ Globes said. ``But one thing is clear: both parties are considering cutting the budget immediately at the start of their term.″

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