Without warning, all scheduled broadcasts on the Israeli radio were canceled one night last week. Instead, listeners heard the weary voice of outgoing Finance Minister Eliezer Kaplan: starting in 48 hours, Israelis would have to turn in their old currency, printed in 1948, and would receive new notes in return. As each Israeli shoved his currency through the bank window, the teller would automatically deduct 10% on all notes of five Israeli pounds and above, as a complusory government loan, repayable in 15 years with 4% annual interest. Bank deposits of £50 and above would be assessed in the same way.
Only a handful of Israeli leaders knew what Kaplan was going, to say, but all Israelis had been expecting something drastic. Their new country simply has not been able to make ends meet. All but $2,000,000 of the $200 million in loans and grants-in-aid from the U.S. Government has been spent. (Israel has received a larger share per capita of U.S. grants and loans than any nation in the world.) The last $11,500,000 of the $65 million U.S. grants-in-aid intended for capital improvements had to be diverted to pay current bills. With an expensive army and ambitious capital improvements to be paid for, with imports running eight times greater than exports, infant Israel has been playing tag with bankruptcy.
The compulsory loan, said the government, would 1) raise an extra $25 million for capital improvements, 2) reduce the inflationary pressure which has doubled and trebled some prices since February, 3) expose the black-marketeers and currency speculators who hold much of Israel's large-denomination banknotes. The Israeli government has promised that the nation would be solvent by 1958. But would the first forced loan be the last? Nervous Israelis hurried off to the nearest jewelers, to convert currency into fluctuation-proof diamonds.