‘Golden Handshake’ Mocks Nation’s Ills : Ex-Bank Chairman a Man Israelis Just Love to Hate

The taxi driver exploded at the mere mention of former Bank Leumi Chairman Ernest Japhet’s name on the car radio.

“May he burn in hell!” the driver cursed, spitting toward the dashboard. “Where I come from, in Iraq, they would have hanged him! It’s not that I like the Arabs. Of course, I hate the Arabs. As far as I’m concerned, it would be better if they were all eliminated. But at least they know the meaning of honor--and revenge.”

Japhet has been the man Israelis love to hate ever since early this month, when a newspaper disclosed that he had received $5 million in severance pay and a $30,000-a-month pension upon his forced retirement.

The news coincided with government efforts to push through a new economic program, and Japhet’s “golden handshake” has become a rallying point for ordinary Israelis who see the plan as favoring the rich at the expense of the poor. Since Bank Leumi is controlled by the quasi-governmental World Zionist Organization, they understandably see Japhet’s pension as coming out of their pockets.

While it may not seem grossly out of line compared with corporate executive compensation standards in the United States, the former Bank Leumi chairman’s deal is considered outrageous in a country where the average wage is the equivalent of about $700 to $800 a month.

Worse, it went to a man forced to retire last April after a state commission investigating the manipulation and subsequent collapse of Israeli bank stocks found his activity “unacceptable in every way, from start to finish.”

The bank-share scandal was so serious that the government had to step in to avert a national financial collapse. The cost of the government bailout has been estimated at nearly $7 billion, or about $1,600 for every Israeli man, woman and child.

News of Japhet’s pension sparked an angry two-hour tirade in the Knesset, the Israeli Parliament, in which lawmakers across virtually the entire political spectrum agreed with a colleague who termed it “the greatest bank robbery ever.”

Ali Baba Reincarnated

Other Bank Leumi employees protested that the deal had turned their institution into “Ali Baba and the Bank of 40 Thieves.”

Newspapers had a field day. The popular Yediot Aharanot published what was reputed to be a facsimile of a June 2, 1986, letter from Japhet to his former wife in which he explained that because he was going on pension, his alimony payments to her would have to drop from $2,550 a month to $1,800.

Israel’s most famous political cartoonist, Yaakov Kirschen, devoted several strips to the subject.

In one it was announced that first prize in the weekly lottery would be “a full four months on a Bank Leumi director’s pension!” In another, a gullible Noah tells God that the rats on his Ark have agreed to watch over the cheese. “And thus,” God says in the last panel, “is born the Israeli system of banking.”

Bank Leumi’s directors, who had approved the pension deal, finally submitted their resignations en masse last week. They acted under public pressure but over the express objections of Prime Minister Yitzhak Shamir, head of the right-wing Likud Bloc, and Foreign Minister Shimon Peres, head of the centrist Labor Alignment and alternate prime minister in the coalition government. One of the board’s final acts was to suspend Japhet’s pension payments pending investigation by a special committee.

Chairman to Step Down

The chairman of the World Zionist Organization, Aryeh Dulzin, said he will step down within a month as governor of the Jewish Colonial Trust, the parent body of Bank Leumi. The Zionist organization appoints the trust’s council, which is responsible for supervising the bank.

The affair has soured public attitudes at a time when the government is seeking broad support for a difficult new stage in its economic recovery program.

“Public relations is awful on it,” said Hebrew University economist Eitan Sheshinsky.

To explain his point, he used an increasingly popular play on words here involving the name of Dulzin, the Zionist organization chairman, and the famous Federico Fellini film “La Dolce Vita,” or “The Sweet Life.” “The public,” he said, “is called on to sacrifice, and here we have this ‘Dulzin Vita.’ ”

The government’s new plan is based on a “trickle-down” theory. It assumes that tax breaks and other incentives for the wealthy will spur investment and economic growth whose benefits will eventually trickle down to the rest of the people.

Widespread Patronage

But Jerusalem Post columnist Yosef Goell argued Monday that under Israel’s widespread system of political and personal patronage, that theory has already been tried and found wanting.

“Never before has there been a period in which so many individuals have enriched themselves at the expense of the public purse and the impoverishment of our public institutions and services,” Goell commented. “And that private enrichment has not trickled down very far.”

Japhet, Goell added, is only “the tip of an iceberg representing thousands of Israel’s nouveaux riches. . . . How then should one react to the many hundreds who are earning $100,000 a year or more in a Jewish Israel that claims that it cannot afford to educate its children, heal its sick and succor its aged?”

Man on Street’s View

As ordinary Israelis see it, they have already sacrificed much to achieve what is widely viewed as the minor economic miracle that has brought the country back from the brink of disaster in just over two years. For example, real wages were slashed by 25% in the first stage of the program.

Inflation, which had exceeded 20% a month several times in 1984 and early 1985, was just under 20% for the full year of 1986. The government, with the help of an extra $1.5 billion in emergency U.S. economic aid, cut its budget deficit and halted what had been a dangerous decline in foreign currency reserves.

Most important, it brought a sense of relative economic stability welcomed by a public exhausted from the frenetic activity that had been necessary to protect the purchasing power of the shekel.

But the “miracle” has been getting frayed around the edges. About half of last year’s increase in the cost of living came in the last four months as wages and prices started moving upward again, and at a faster pace.

Changes Only Delayed

Critics contend that the $1.5 billion in emergency American aid--beyond the regular $6-billion aid package for the two-year period--helped the government avoid the underlying structural changes that they say are vital if the country is to return to long-term economic health.

“They have reduced inflation, but I would say it ends there,” Sheshinsky, the university economist, said of the government’s program to date. “Nothing else has happened.”

When the Finance Ministry proposed a new, “growth” stage in the economic program last November, it said the country stood “at a critical crossroads.”

“While the stabilization process has scored successes,” the ministry went on, “it now faces the danger of serious erosion due both to premature demands for an expansion of the state budget and an inordinate rise in wages.”

Sweeping Tax Reform

It proposed the most far-reaching tax reform in Israeli history, as well as a continuing hold on government spending to encourage savings and investment and to reduce a bloated public sector that still employs nearly two of every three workers.

But the program quickly ran into criticism that it favored the rich at the expense of the poor--a backlash worsened by news of the Japhet pension.

The latest government budget cuts have hit social welfare and education programs particularly hard, while the Ministry of Defense argued successfully that it had already pared its spending to a minimum and could not afford more cuts.

Public reaction has been sharp. Several hundred disabled people, some in wheelchairs and some on crutches, held a protest march in the center of Tel Aviv last week to protest the government’s plan to start taxing pensions for widows, the handicapped and the elderly. The government quickly dropped the idea.

Wives on Hunger Strike

On Sunday, policemens’ wives began a hunger strike outside the prime minister’s office to protest what they described as their husbands’ inadequate wages. And on Monday, hospital workers walked off the job, causing those institutions to evacuate non-critical patients, postpone elective surgery and close outpatient clinics.

Teachers say they will close kindergartens later this week to protest cuts in the education budget. And the head of Histadrut, the powerful trade union federation, insists that he will not agree to the new economic plan unless the government comes up with nearly $100 million for Israel’s deteriorating national health service.

Meanwhile, a 10% devaluation of the shekel approved last week will mean new price increases in an economy heavily dependent on imported goods.

‘Looking Pretty Grim’

“It’s looking pretty grim,” commented Pinhaus Landau, the Jerusalem Post economic correspondent. “I can’t see that this plan will hold together.”

In what many Israelis see as a particularly blatant snub, government ministers got a 40% pay increase even as the economic debate raged.

And on Monday, the Hebrew-language newspaper Haaretz reported that the government has ordered new Volvo automobiles for Cabinet ministers at a cost of nearly $500,000.

Questioned about the timing of the order, Treasurer General Aryeh Sheer said it was routine.

“We try to change cars every four years,” he said. “What do you want--that the ministers go by bus?”