In the 13 months of Israeli Prime Minister Menachem Begin's rule, his government has been shaken by ministers voicing their disapproval of policy, mainly in foreign affairs. But the first minister actually to hand in his resignation was the minister of commerce and industry who did so in protest over the government's inflationary spending.
The minister, Yigal Hurwitz, an outspoken former farmer and industrialist - who like his cousin, Foreign Minister Moshe Dayan, was once active in the Labor Party - has since withdrawn his resignation. A clevely worded compromise made it possible to settle the crisis, or at least postpone it. Nevertheless, no one has disputed Hurwitz's charge that the government has failed to harness runaway inflation.
In fact, some critics believe that if the Begin government is forced out of office, it will be over its performance on the economic front. Nobody expect this to happen overnight. Yet, as many experts see it, the Hurwitz affair of last week may be an early warning for the government to put the economy in order.
Israel's leading public opinion pollster, Herbert Smith, known for his analysis of Israeli election campaigns, says that despite a deep concern with foreign affairs and security problems, Israelis are very much influenced by economic issues and are likely to blame the government for what they consider "the economic mess."
Israeli was plagued by high inflation long before Begin's government took office in June 1977. Prices had been rising between 30 and 40 percent annually but seemed to be slowing down during the first months of 1977. Despite a campaign promise to end inflation and despite ridicule of the "wasteful" Labor government that preceded it, the Begin team has done no better. Inflation was 38 percent last year and is expected to be even higher in 1978.
Some economists believe that the cause of the Begin government's economic troubles is its drastic foreign currency shift last October. Together with the virtual lifting of all currency controls and ending of all direct subsidy of exports, the Israeli pound was devalued by more than 50 percent and value-added taxes were increased.
While the foreign currency aspects were successful and foreign exchange reserves increased, the inflationary spiral has yet to be controlled.
The powerful Histadrut - Israel's federation of labor - which the opposition Labor Larty still controls - used the rapid increase in prices to demand wage increases that further fed the inflation.
Since the public sector employs almost a third of the labor force, the Histadrut wage demands were directed mainly at the minister of finance, Simcha Ehrlich. At first Ehrlich resisted all demands. Finally, threatened by several strikes in the public services, he gave in. Even so, most unions in the public sector are still unsatisfied and are demanding higher increases and are demanding higher increases than those recommended by the Histadrut policy with the result that most contract renewals have not yet been signed. Nevertheless, it is already clear that the government has gone far beyond the pay increase it had intended.
Ehrlich has also given in to a Histadrut demand not to raise the price of government services and subsidized food items at least until October. As a result subsidies on such items as bread, milk, eggs, and public transportation are at unprecedented levels. Still, prices continue to rise and the government is now faced with the dilemma of what to do in October, when the current agreement comes to an end.
Observers note that in the past, when there were clashes between Histadrut and governments dominated by the Labor Party, the government seemed less reluctant to oppose Histadrut demands. Ehrlich seems determined to avoid confrontation with the unions, apparently because of his government's sensitivity to the charge of being "antilabor." Since the Likud politicians realize that the party draws its main support from blue-collar workers and from Jews who have arrived from Arab countries, the Begin government is avoiding any decision that will cut government services or impose new economic burdens on the general public.
This has compelled the government to introduce a supplementary budget of $1.4 billion, thus substantially increasing its deficit, although only four months ago parliament adopted a record regular budget of $10.5 billion. Hurwitz was one of the nine ministers who opposed the $1.4 billion supplementary measure. He demanded a cut of $400 million, even if this meant that unpopular steps would have to be taken.
The compromise, to which Begin gave his blessing and which enabled Hurwitz to withdraw his resignation, calls for a budget cut, but the step will be taken not by the government but by the finance committee of parliament. Observers feel that by the time this cut is made, if at all, it will have been long overtaken by rapidly rising prices and government expenditures.
Inflation in Israeli is less painful for the average family than in other countries. Salaries, savings and even tax rates are indexed so that adjustments are made every several months. Also, unlike many Western countries, Israel has hardly any unemployment.
Yet, the present situation may cause Israel's balance of payments gap to widen again. As a result of a continuous rise in exports and a much slower rise in imports, Israel was able to reduce its balance of payments gap during the past three years from $4 billion to only $2.5 billion.
If the feared reversal take place, the Begin government will, ironically, be responsible for increasing Israel's dependence on foreign assistance and thus further limit its free hand in taking political decisions.