IMF WARNS ISRAEL PAY RISES MAY THREATEN STABILITY
The International Monetary Fund has
warned Israel in a report that a continued rapid rise in wages
could undo the achievements of its economic stabilization
program in controlling hyperinflation.
    An IMF delegation, which visited Israel this week, issued
an interim report praising Israel's success in slashing
inflation from 440 pct in 1985 to 19.7 pct last year without
triggering mass unemployment.
    But it held up Argentina and Brazil as examples of the
perils awaiting countries who did not follow up on
stabilization programs.
    "Continued rapid rise in wages would threaten the progress
in reducing inflation and the present level of employment," the
IMF said.
    The report echoed warnings last week by Bank of Israel
Governor Michael Bruno and the private Bank Hapoalim that
higher wages, government overspending and a consumer boom were
rekindling inflation. "Though wage developments and the
reacceleration of inflation are worrisome, there is still time
to put the stabilization program back on track," it said.
    The warning comes ahead of Israel's key public sector wage
negotiations next month.
    Bank Hapoalim chief economist Petahia Bar-Shavit said real
growth of wages in 1986 was about 10 pct, following a fall of
between 15 and 20 pct in the second half of 1985 when the
government's economic stabilisation programme was introduced.
    Hapoalim forecast last week that inflation would rise to
around 30 pct this year and a second devaluation might be
necessary later in the year, following the 9.75 pct devaluation
against the dollar in January.
    Bar-Shavit also said the government was implementing a
policy of cutting taxes without a clear strategy for balancing
the budget.
    The IMF report said monetary policy was relaxed too fast
last year and it supported the Bank of Israel's raising of
interest rates in the last month.
 REUTER
