Israeli government officials say they hope a sweeping new wage and price control agreement will increase chances of winning a large increase in U.S. aid and help cure the country's economic woes.
The extension of economic controls, signed late Thursday night, was described by Prime Minister Shimon Peres as "one of the most important and far-reaching agreements" in the country's history.
Officials of the national unity government, Israel's national trade union federation Histadrut and the country's Manufacturers Association agreed to deep cuts in government subsidies of basic consumer products and to a series of controlled wage and price increases aimed at preventing a rekindling of the rampant inflation that has been plaguing Israel.
In a recent letter to Peres, U.S. Secretary of State George P. Shultz warned that substantial increases in U.S. aid sought by Israel would be jeopardized unless tougher measures were adopted to curb the country's economic troubles.
A senior Israeli economic official who was involved in the negotiations on extending controls said today that the hope was that the new agreement would help satisfy Shultz's demands.
"We tried to do our best," he said. "We cut all of our expenditures. Now we need a little more help from the U.S. to bridge the gap."
The agreement will replace an earlier three-month wage and price freeze that expires next month.
There was widespread fear here that, had the three sides failed to agree on a continuation of controls after the freeze, there would be an explosion of price increases, triggering huge, automatic cost of living pay raises and setting off a new inflationary spiral.
The new accord is to take effect Feb. 4 and last for eight months. However, only the first five months of the agreement are binding. After July 1, any of the parties can ask for a review of its terms or unilaterally renounce the pact.
Speaking to reporters at the end of the negotiations, Peres called the new agreement "an almost unprecedented step in a democratic state."
"This is not a passing agreement, but a powerful economic step, which I am convinced will bring about recovery for the entire economy," he said. "I am sure that the country's economy has taken its first steps on the right road, and we will start to grow. This country has enormous potential."
In addition to its economic impact, the agreement has important political ramifications as Israel begins an intensive effort to win a huge increase in aid from the United States.
Israel is seeking almost $5 billion in military and economic assistance from the United States over the next 18 months. Its request calls for an increase in military aid from $1.4 billion this fiscal year to $2.2 billion in the next fiscal year, and a rise in economic assistance from $1.2 billion to $1.85 billion in the next fiscal year. In addition, Israel is seeking an emergency supplemental appropriation of $800 million in economic aid during the current fiscal year.
The administration has decided to recommend that the military aid package to Israel next year total $1.9 billion. It has not decided on the economic aid level or the request for a supplemental appropriation.
Meanwhile, the Peres government still has not accomplished one key measure in its overall economic program. The Cabinet has agreed in principle to slash the budget for the fiscal year beginning April 1 by $1.1 billion but still is arguing over where the cuts will be made.
General reaction here to the new agreement was favorable. There appeared to be a sense of disgruntled acceptance that drastic economic measures are necessary. The first of those measures took effect at midnight Wednesday, when government subsidies on such basic commodities as milk, bread, butter, cooking oil and gasoline were slashed, leading to immediate price increases of 25 percent.