US poised to provide massive assistance if Israel adopts belt-tightening measures
The United States is likely to provide Israel with substantial emergency economic aid if the Israelis adopt belt-tightening measures, State Department officials say.
US congressional specialists agree that if a new Israeli government can produce a coherent economic plan that would include budget cuts, the American Congress would without hesitation approve such aid.
There seems to be agreement in both the State Department and the Congress that Israel is in a state of economic crisis. Its foreign-exchange reserves are dwindling. Inflation rages at about 400 percent. The value of the Israeli shekel has dropped sharply in recent weeks.
''The problem is that the Israelis have been living for two decades beyond their ability to pay,'' a congressional staff specialist said.
If the Israelis produce an economic plan that makes sense here, the administration and the Congress are expected to take up the emergency aid issue after the Congress reconvenes early next month. Israeli officials apparently see a need for swift action.
Israel's prime minister-designate, Shimon Peres, is reported to want an increase in aid of more than 25 percent, or about $700 million, for the fiscal year starting Oct. 1. In an interview with the Wall Street Journal last week, Gad Yaacobi, Mr. Peres's designated finance minister, said he envisages asking the US for this amount as part of a rescue plan.
Mr. Yaacobi said a Peres government would adopt austerity measures, including a reduction in price-indexed wage increases and a cut of between US $1.3 billion and $1.5 billion in Israel's $20 billion government budget. Yaacobi argues that with such measures in place, Israel would have the ''moral authority'' to ask for additional US aid.
Israeli newspapers have speculated that if caretaker Prime Minister Yitzhak Shamir stayed in power, the Israelis would ask for an even larger sum than the proposed $700 million in emergency assistance.
Israel is already the largest recipient of American aid. Under the Reagan administration, Congress has boosted that aid beyond even what was requested by the administration. This summer, the Senate Appropriations Committee approved the most favorable aid package ever for Israel, including $1.4 billion in military aid and $1.2 billion in economic assistance, or a total of $2.6 billion for fiscal year 1985. On Aug. 8, the House Foreign Operations subcommittee on Appropriations approved the $2.6 billion figure.
This has been the first year in which all economic and military aid for Israel has been converted into grant aid. In the current fiscal year, Israel receives half its military aid in the form of a grant and half as a loan.
Despite massive American grant aid, however, Israel has long been one of the most heavily indebted nations in the world.
Congressional committees have passed several amendments this year aimed at easing the burden. One would make $250 million of the $1.4 billion in military grant aid available for spending in Israel on the Israelis' Lavi fighter plane. Another would allow Israeli companies, for the first time, to bid for US government contracts for development projects around the world.
Israel's international credit rating, meanwhile, depends heavily on a US willingness to maintain a high level of aid. As Thomas R. Stauffer argued in a paper published last year by the Middle East Institute here, Israel is protected from default on its debt to the United States only by cash grants and new loans from the United States.
There seems to be considerable agreement both in Washington and in Jerusalem as to what needs to be done to bolster the Israeli economy. It adds up to what one State Department official describes as the standard International Monetary Fund approach to many heavily indebted nations around the world. This includes cuts in imports and in government expenditures. This sounds simple, but it inevitably means suffering on the part of Israeli consumers and reductions in the extensive Israeli system of social services.
''Wage and price controls would have to be part of a well-reasoned program,'' the State Department official said.
Secretary of State George Shultz has taken a strong interest in Israel's economic problems. In addition to a government committee dealing with these problems, Shultz has available advice from a group of private economists headed by Herbert Stein, former chairman of the Council of Economic Advisers to President Nixon.