Israel's Peres is hard put to sell austerity plan to skeptical public

Israeli Prime Minister Shimon Peres is discovering that announcing a national austerity program is one thing. Selling it to a skeptical public and an enraged labor union is another.

More than a week has passed since the Israeli Cabinet announced dramatic new steps to cut the budget deficit, fire 10,000 civil servants, reduce workers' wages, freeze prices and the exchange rate, and substantially devalue the shekel. But many key points of the plan to salvage the economy remain unimplemented.

The biggest problem for the government is convincing the Histadrut, the nation's giant trade-union federation, that it is good for Israel's workers to accept a wage erosion that will put many of their salaries back to 1980 levels.

Peres says the Israeli democracy is at stake, because if his plan fails, the economy could collapse and bring chaos. Yesterday he and Finance Minister Yitzhak Modai met Yisrael Kessar, secretary general of the Histadrut.

They were reportedly unable to agree on just how much the wages of the average Israeli worker should be cut. In fact, Mr. Kessar and Mr. Modai cannot even reach agreement on how much the government's plan as announced would actually trim wages. Kessar insists that by September -- the end of the government's three-month emergency period -- wages will have been eroded by 30 to 50 percent. Modai puts the figure at 7 percent.

Three thousand angry civil servants, demonstrated outside Israel's parliament yesterday. The nation's state-owned electric and telephone companies and ports were idled by strikes, and further strikes were threatened by other unions. Kessar is under increasing pressure from the workers he represents to again bring the nation to a complete standstill by calling a general strike. Last week's general strike called by Kessar pulled an estimated 80 percent of Israel's workers off their jobs for a day.

Sources close to the talks between Kessar and the government predict that an agreement providing more one-time compensation for workers will be reached. There is some question, however, over Kessar's ability to keep in check his more militant local union heads.

Faced with the Histadrut's resistance and criticism from the media, Peres is fighting back. He has formed a media team to sell the austerity plan to the public. Last week the team ran a series of ``man in the street'' interviews on Israel Television, showing people who said the measures were harsh but necessary. This week, it plans to run interviews with Peres who is also stumping the country, repeating his theme that harsh measures are necessary to prevent widespread unemployment and economic chaos.

It is too early to tell whether Peres's efforts will be enough to win over a public that is experiencing its fourth set of economic austerity measures in the 10 months since the government was formed.

``This program is a gamble, but its like you are walking in a maze and you gamble on walking forward rather than sideways,'' said Michael Bruno, the Hebrew University economist who helped formulate the austerity plan. ``It's an alternative, rather than sitting down and waiting for the collapse.''

At a press briefing Tuesday to explain the economic measures, Dr. Bruno reiterated Peres's argument that there was no alternative to the draconian measures.

The real test of the plan's chances for success, Dr. Bruno said, would be whether the $750 million in announced cuts from ministry budgets were actually made. Cutting the budget deficit, he said, ``is central'' to the plan's notion of tackling Israel's twin problems of a super-heated inflation rate and and ongoing drain on foreign currency reserves.

The series of ``package deals'' implemented by the government since last fall simply had not worked, Bruno said. They had addressed only the problem of inflation -- which is expected to jump to 25 percent for the month of July -- and had not effected budget cuts.

``We have learned our lesson about partial approaches,'' Bruno said. ``This time we also cut the government budget up front and froze the exchange rate.''

Israel's workers, Bruno said, had enjoyed a 15 percent increase in real wages since 1980, but productivity had stagnated. The plan is designed to right that imbalance by taking wages back ``to the 1980 level or maybe even less.''