Yitzhak Shamir as Prime Minister

Yitzhak Shamir as Prime Minister

On September 16, 1983, Prime Minister Begin resigned from office and retired from public life, ending a major era in Israeli history and politics. he was clearly affected by the death of his wife and by the costs to Israel of the war in Lebanon. Shamir won Likud’s leadership in an internal party election in which he defeated David Levy by a two-to-one margin.

On October 10, the Knesset, by a vote of 60 to 53, endorsed the Shamir-led government and its programs. The government was essentially the same as its predecessor, and Shamir retained the foreign affairs portfolio. Israel and the Shamir government faced a range of foreign policy issues that focused on the Arab-Israeli conflict and relations with the United States.

Although Israel’s military position in Lebanon improved with the IDF’s redeployment from the Shuf Mountains to the Awali river, it did not guarantee the security and safety of Israeli forces. Israel’s major goals in Lebanon had not been fully achieved, and even the May 17 agreement had not been implemented.

The involvement of the United States in Lebanon, and the attacks on U.S. forces and positions in Lebanon and elsewhere in the region, provided the context for improved relations between the United States and Israel after Shamir took office. reagan and Shamir agreed on the need to reinforce the Gemayel government and rebuild Lebanon as a free, independent, and sovereign state, with a reconstructed economic infrastructure; to force the withdrawal of all foreign forces; and to provide an army capable of supporting the government’s position.

They identified Syria and the Soviet Union as threats to peace and stability. This coincidence of perspective and objective led Israel and the United States to achieve wide-ranging agreement on closer coordination and policy. At the same time, there were issues of discord that focused on the West Bank and Gaza and on the reagan fresh-start initiative.

The National Unity Government

In July 1984, Israeli voters went to the polls to select members of the Eleventh Knesset. Likud’s Shamir and the Labor Alignment’s Peres led their party blocs in the contest. Labor was unable to capitalize on Likud’s various misfortunes, including the retirement of Begin, the continued presence of Israeli forces in Lebanon, and the economic problems reflected in hyperinflation. Shamir proved able to retain much of Likud’s electoral support, avoiding what many thought, and public opinion polls had earlier predicted, would be a substantial Labor victory.

Fifteen of the 26 political parties that contested the election secured the necessary 1 percent of the valid votes cast to obtain a parliamentary seat. Overall, the election results were inconclusive. The two major blocs were relatively close in size: the Labor alignment secured 44 seats, and the Likud, 41. The remaining seats were not distributed in any clear pattern that would facilitate the formation of a new government.

The division in the Israeli body politic proved to be the main factor leading to the complicated formation of a national unity government (nUG) that was approved by the Knesset in September. The coalition negotiations were lengthy and complex, and at their foundation were an intricate and involved series of compromises, including the rotation of the prime minister’s position between Shimon Peres for the first 25 months of the coalition’s life and yitzhak Shamir for the second 25-month period.

This formation of a two-headed national unity government was a new experiment in Israeli politics and brought about a virtual paralysis of decision making in all but areas of broad consensus.Israelis were divided on key foreign policy as well as political, economic, social, and religious issues facing the country. This situation was compounded by a lack of dynamic and charismatic leadership.

A consequence was that little was accomplished in matters requiring a bold initiative, including the peace process. This paralysis was accompanied by much popular cynicism and scathing criticism of blunders, coverups, and scandals such as the Pollard Affair (involving a U.S. civilian navy intelligence analyst—Jonathan Jay Pollard—who gave secrets to the Israeli government) and its aftermath.

nevertheless, the forced marriage of Labor and Likud survived a turbulent and challenging two years of major and minor crises as a consequence of conflicting styles and substantive differences. The dominant question was whether the coalition would endure and whether or not Labor would honor the agreement to rotate the posts of prime minister and foreign minister.

When Peres resigned his post on October 10, 1986, he was popular in public opinion polls. Ironically, in turning over the prime minister’s position to Shamir, Peres added to his credibility and overcame doubts about his trustworthiness, a long-persistent criticism of his political style. he emerged as something of a statesman, with an image as a patient, skilled politician able to keep together his fractious government and to achieve important policy goals.

Peres was credited with the withdrawal of Israeli troops from Lebanon (and the attendant drop in Israeli casualties) and the reduction of high levels of inflation; Israel’s currency since 1980, the shekel, which replaced the Israeli pound, was rehabilitated and renamed the new Israeli shekel (nIS); the balance of payments had improved; and exports had increased.Peres established a popular style at home and was given relatively high marks for his role in the otherwise stalemated Arab-Israeli peace process as a consequence of some movement on the part of King hussein of Jordan and a meeting with King hassan in Morocco.

The resumption of dialogue with Egypt that led to an agreement to arbitrate the Taba dispute (a small enclave on the Egypt-Israel border that remained in dispute when the international border was established between the two counties following their peace treaty of 1979) and culminated in a summit with Egyptian president hosni Mubarak. All were deemed successes for Peres. he seemed to be constantly on the move, and his visits with world leaders, at home and abroad, enhanced his image.

he presided over the establishment of diplomatic relations with Spain in January 1986, the renewal of relations with the Ivory Coast and Cameroon, and the unprecedented visit to Israel of British prime minister Margaret Thatcher. The August 1986 Soviet-Israeli meeting in helsinki, Finland, and Peres’s meeting with Soviet foreign minister Eduard Shevardnadze at the United nations in fall 1986 were important if not immediately productive events.

Israel’s special relationship with the United States remained central and reached new levels of cooperation and euphoria during the nUG through strategic cooperation and broad agreement on political themes and issues. The United States and Israel entered an era of good feeling that became pervasive in both the U.S. legislative and executive branches, the latter under the leadership of President ronald reagan and Secretary of State George Shultz.

The concept of the Jordan option, central to the Peres perspective on the peace process, was a crucial element in the reagan peace plan announced in September 1982. In addition, while Begin and his government had rejected the reagan plan, Peres and the Labor Party were more open minded. The United States saw the Peres tenure as one that contributed to the peace process.

The culmination of his term in office was Peres’s visit to Washington in mid-September 1986, at a high point in U.S.-Israel relations. In addition, the United States–Israel Free Trade Area agreement was adopted, and wide-ranging political and strategic cooperation was sustained.

Economic Problems

Peres’s greatest achievement was in the economic sector. Economic problems had beset Israel since its independence, but their nature varied over time. The dominant economic issues facing the nUG were high inflation and slow growth rates that had been characteristic of the economy since the 1973 war. The standard of living of the average Israeli was stagnant.

In July 1985, Israel adopted a new program to deal with the several ills of the economy, notably, the problem of hyperinflation. The budget deficit was cut, the shekel was devalued, then pegged to the U.S. dollar, prices and wages were frozen for three months, and the indexing of wages to prices was suspended.

The latter had the effect of a 20 percent drop in real wages, and a dramatic rise in unemployment was prevented. The wage and price freeze was gradually lifted. high interest rates tightened credit. The program met its basic objectives. The annual inflation rate of more than 400 percent declined to a rate less than 20 percent by 1987.

The change was accomplished without the usual side effect of unemployment, which remained at about 7 percent at the end of 1986 and dropped to less than 6 percent in 1987. A recession was avoided, too. The country’s balance of payments improved, and foreign currency reserves doubled.

The shekel remained relatively stable against the dollar. The state budget, which was about $24 billion, was virtually in balance, partly through the cutting of food and transportation subsidies and the imposition of new taxes on such luxury items as foreign travel and cars.

Peres and the nUG were prepared to take the difficult measures necessary to make the program, which attacked all sectors of the problem—manufacture, labor unions, the state budget, and the exchange rate—work. Facilitating the effort was the fact that crude oil prices and commodity prices were down and worldwide interest rates had declined.

The worldwide decline in oil prices was important to Israel’s energy-importing economy and reduced its expenditures for oil by about 35 percent between 1985 and 1986.These factors enabled Israel to save a substantial amount of foreign currency during the initial two years of the austerity period.

The United States proved particularly helpful. During 1985 and 1986, it provided Israel with an additional $750 million per year over and above the regular aid program of some $3 billion a year in economic and military assistance. The extra U.S. aid was crucial; it made it possible for Israel to take risks that otherwise might not have been adopted. The United States was also instrumental in offering advice from Secretary of State Shultz and his economic team.