Moves to Alleviate U.S. Concerns : Israel Plans Tough New Budget, Currency Laws

Laws will be proposed within 10 days that would bind government officials to stay within their budgets and place strict new limits on the government’s right to print new currency, Finance Minister Yitzhak Modai said Tuesday.

The proposed laws, which Modai said are unprecedented in Israel, address two of the key criticisms leveled in Washington against the national unity government’s economic policy when the United States decided two months ago to defer consideration of an Israeli request for $800 million in emergency aid.

Meeting with a small group of reporters in his office, Modai said: “Both laws stand a very good chance to be passed--and fast.”

Modai--who is due to leave for the United States in three weeks to press for the emergency aid request and to discuss longer-range strategy for overcoming this country’s economic crisis--said the laws will be submitted to the Cabinet before the end of next week.

The finance minister said the biggest problem in implementing the proposals will be getting “over the hurdle” of a section in one of the bills that provides for “administrative measures against” any government official exceeding his budgetary authority.

“Once we’ve gotten over the hurdle of the sensitivities in these laws--namely, the authority of the individual ministers on the one hand, and then making the act a legal offense--once we’ve gotten over this hurdle, I think all the rest is very simple,” Modai said.

The proposed budget law would outline restrictions for various types of spending and would allow excess expenditures only after a “special government resolution” or in an “extreme case.”

The second proposed bill would end the current system under which the Bank of Israel is obliged to lend the government as much money as it requests. In effect, Modai said, this requirement has served as carte blanche for the government to print money, destroying fiscal discipline and providing the principal tool by which Israeli governments have managed regularly to overspend their budgets.

The new proposal, which Modai said will also be submitted in about 10 days, would provide for progressively lower legislative ceilings on the amount of money that the bank could loan the government. In the end, the government would be forced to live only on whatever money it could raise through traditional means such as taxes or borrowing on the open market either here or abroad.

The finance minister said work is still under way on details covering what he called a “transition period.” But he said the current proposal is to limit borrowing from the Bank of Israel in fiscal 1985, beginning April 1, to 50% of the 1984 budget deficit, or about $1.5 billion. The following year, the ceiling would drop to about $750 million and, by fiscal 1987, the government would be “on our own.”

Even if the two bills are enacted into law, it is not clear whether they will satisfy critics within the Reagan Administration who fear that the national unity government’s gradualist approach to curing Israel’s economy will not work.