The Day the New Israeli Shekel Saved Us From Greece's Fate

The Economic Stabilization Plan, approved after a 24-hour cabinet meeting on June 30, 1985, put an end to over a decade of steadily increasing inflation.

Hananya Herman / GPO

Israel’s State Archives on Monday released the minutes of the dramatic cabinet meeting on June 30, 1985 that resulted in the Economic Stablilization plan and Israel's delivery from hyperinflation. Previously classified top secret, the minutes were released on the 30th anniversary of the plan’s adoption.

The meeting lasted almost 24 hours, from 9:30 A.M. on Sunday until 9 A.M. on Monday, and produced 319 pages of minutes, one the longest stenographic records in the cabinet’s history.

“The meeting was fateful, because the agenda was rescuing Israel’s economy from an existential crisis,” according to Dr. Dror Goldberg of the Open University’s Department of Management and Economics, who reviewed the minutes. “There was a clear and present danger of a comprehensive existential crisis – economic, social and political – that for readers in 2015 can be summarized in a single word: Greece.”

The marathon meeting was led by Prime Minister Shimon Peres, who headed a national unity government on behalf of the Alignment, as the Labor Party was then called. His deputy, Yitzhak Shamir of the rival Likud party, said almost nothing throughout the debate.

One minister, Housing Minister David Levy, protested Peres’ refusal to adjourn without a vote. “How can ministers explain and argue when half of them are asleep?” he asked. “This is the best time to make decisions,” Peres retorted. “I’ve been waiting for this moment for a long time.”

According to Goldberg, Peres’ decision to hold an all-night meeting on a plan the ministers weren’t allowed to see in advance set a problematic precedent that governments have imitated ever since, in the form of the Economic Arrangements Bill. The invariably massive bill is submitted annually to the Knesset, which must approve it without time for proper discussion because it is part of the annual budget.

By 1985, Israel’s inflation rate was almost 450 percent. It had been climbing steadily since the early 1970s, years in which massive government deficits were financed by printing money. The stabilization plan therefore included a huge budget cut of $750 million.

“All the steps we’re taking are from lack of choice,” Peres told the cabinet. “There’s simply no other way.”

“Nobody is doing this because he thinks this is the best thing in the world, [but] the alternative is terrible,” he added, referring to the prospect that Israel would be left with rampant inflation and no foreign currency.

“You don’t want to do anything,” he complained to his colleagues at one point. “Should we all start to cry? I know this is difficult.”

Finance Ministry Director General Emmanuel Sharon admitted that the plan was “a gamble,” but said it was necessary, because “we have no time to do a multi-stage plan.”

That statement frightened Education Minister Yitzhak Navon. “A gamble – that means it could fail?” he asked.

“A gamble – that means it could succeed,” responded the ever-optimistic Peres. But Defense Minister Yitzhak Rabin was less sanguine, warning, “Most gamblers lose.”

Levy, who was one of the most active participants in the debate, criticized many aspects of the decision-making process, including the demand for a same-day vote and the fact that the plan was leaked to the media even before the cabinet discussed it. “I understand the gravity [of the situation],” he said. “But why didn’t anyone think it was equally grave three or four days ago?”

He also opposed the substance of the plan, saying it put too heavy a burden on ordinary Israelis. “We’re taking a heavy bag of cement, putting it on the economy and the citizenry and telling them to run with it, not just walk,” he charged. “They’ll break under it.”

And he voiced impatience with the economic jargon of treasury officials. “What does that mean in Hebrew?” he demanded, after Sharon spoke about “managing the exchange rate against the currency basket.”

Minister of Labor and Social Affairs Moshe Katsav also opposed the plan, in particular the proposed cuts to child allowances. He painted a grim scenario of “a quadriplegic child who doesn’t go to bed at night because there’s no nurse to change his clothes and put him in bed,” then demanded of Peres, “Is that shocking enough for you? Do I need to speak in that style?”

A furious Peres retorted, “Moshe, stop smearing me ... You’re sitting there the whole time and smearing me, [saying] I don’t care about children, I don’t care about the elderly.”

At the end of the meeting, the ministers voted to approve the plan, and Peres thanked them “from the bottom of my heart,” along with the stenographers who had stayed up all night to record the minutes. Most of the ministers were exhausted.

But Peres “was as energetic, elegant and charming as always,” declared Dr. Yishay Maoz of the Open University’s Department of Management and Economics. “With typical Shimon Peres vitality, he went on to a packed morning of implementing the cabinet’s decisions.”