The money lever
After almost 25 years of generous US aid to Israel, Uncle Sam has a few questions.
Raoul Teitelbaum 9 May 02 16:14
Once upon a time, many years ago, then-US Secretary of State Henry Kissinger said Israel had no foreign policy, only a domestic one. His remark also applies to the US. It follows that US-Israel relations belong more to the category of domestic policy than foreign policy. That’s certainly how Israel would like to see it.
On the eve of his arrival in Washington, Sharon got a declaration of support from the US Congress, to the embarrassment of the US Department of State. At the same time, however, the White House prevented Congress from approving another $200 million in defense aid for Israel. The excuse was budget problems and the desire to avoid giving the wrong message to the parties in the Middle East. This unsubtle pressure is a taste of what could happen if we ignore US interests in the Middle East.
Here are some facts of life:
It is hard to measure Israel’s dependence on Uncle Sam in statistics. For some reason, we have no data on the geographical-regional distribution of our balance of payments. “We only wish we had such information,” the Central Bureau of Statistics says.
There are, however, enough figures to get an impression. Trade with the US accounts for 37% of our exports and 19% of our imports. The proportion of exports to the US has doubled in one generation, while the proportion of imports has dropped by a third. In all other parameters, we are very addicted to US largesse.
US grants to Israel, both military and civilian, began in earnest after 1973. A framework was established after the Yom Kippur War: $1.8 billion in defense aid and $1.2 billion in civilian aid. The civilian aid was actually used to repay previous US government loans to Israel. Once the loan service payments declined, it was agreed that starting in 1998, US civilian aid would be reduced by $120 million and military aid would be increased by $60 million each year.
US civilian aid is scheduled to come to an end in 2007, while military aid rises to $2.4 billion. It is true that 75% of the military aid is designated for orders from the US, while only 25% is set aside for use in Israel itself. To this must be added another $100 million in annual interest.
In recent years, however, more defense grants have been added, in addition to these amounts. The Israel Defense Forces have received US Army surplus weapons and material, the value of which is listed as a grant in the balance of payments. Israel received $50 million in both 1996 and 1997 as special aid for fighting terrorism. In the period of the Wye Agreements, $1.2 billion in special military aid was approved over four years, beginning in 2000. Israel was also promised further special US military aid following its unilateral withdrawal from Lebanon, a promise that has not been kept to this day.
Over the past 18 years, we have received the huge sum of $57 billion – an average of $3.2 billion per year. In economic terms, US grants accounted for half of all current transfers and net capital transfers to Israel’s economy from all sources. Without these grants, our current account deficit would be three times its actual size.
Israel’s financial dependence on the US has therefore risen enormously in recent decades, not to mention innumerable financial and other business links that cannot be measured.
During his visit to the US that concluded yesterday, Sharon heard a number of things in Washington: Israel should freeze settlements, Arafat is relevant, and above all, President Bush has no time. If Sharon didn’t get the $200 million hint, he’ll get an even cruder one.
All this stinks of oil. Some Washington observers believe Bush made a quasi-deal with Saudi crown prince Abdullah: a halt in settlement construction in exchange for a halt in global oil price rises. This issue is turning foreign policy into domestic policy, and not just in the US.
Signs of slow growth in the global economy have been emerging since the beginning of 2002. “But,” Deustche Bank wrote in a circular to its customers, “the renewed Middle East escalation, together with rising oil prices, is liable to have a negative impact on securities markets.” If Deutsche Bank junior economists know this, so do the senior US presidential economic advisers.
Sharon went, heard, spoke, and came home early. Voices have begun to be heard in favor of an enforced solution of international trusteeship over the territories, as two-time US Ambassador to Israel Martin Indyk, one of the architects of US Middle East policy, wrote. Sharon will go on hearing. Global economic recovery is too important to be left to the local players.
Published by Globes [online] - www.globes.co.il - on May 9, 2002