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Aid to Israel taking back seat to realities of budget deficit

For the first time in recent memory, efforts to aid Israel may be forced to take a back seat to hard budget realities. Sponsors of a Senate proposal to lower to 5 percent the interest rate on US military loans to Israel say the measure is necessary to help Israel weather a severe economic crisis.

But opponents of the measure, including many old friends of Israel, say this is not the time to add new burdens to the federal budget -- especially since many needy US interests, including American farmers, are facing a financial crisis of their own.

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``If we approve this `buy down' to 5 percent, how can I go back home to explain to farmers who are in deep trouble that they have to pay 11 percent?'' asks Sen. Lawton Chiles of Florida, ranking Democrat on the Senate Budget Committee.

The ``buy down'' proposal was first proposed as one means of compensating Israel for a proposed sale by the US of nearly $2 billion in new arms to Jordan. When consideration of the Jordan arms sale was postponed until March 1, supporters of the proposal, led by Sens. Robert Kasten (R) of Wisconsin and Daniel Inouye (D) of Hawaii, decided to go forward with the plan anyway.

The proposal calls for reducing from 11.1 percent to 5 percent the interest Israel pays on over $7.7 billion in debt on past military sales from the US. Israel is the largest recipient of US foreign aid, this year receiving $3.8 billion in economic and military assistance.

Those who support the interest reduction say the measure is necessary to give Israel ``breathing space'' to implement an economic reform program launched earlier this year. They say by reducing Israel's debt-service burdens, the US will be helping to preserve the economic viability of its strongest ally in the strategically critical Middle East.

Sponsors concede that the program would require a new appropriation. But under Senate budget rules, the appropriation could be charged against funds authorized but not spent last year, they say. The largest block of unused money from the 1985 budget comes from the Export-Import Bank.

``Essentially, it's an argument over how the US government -- or more particularly, the Senate -- keeps its books,'' says a congressional source.

But critics of the plan, led by the Office of Management and Budget (OMB) and members of the Senate Budget Committee, say finding $500 million in the federal budget just isn't that simple.

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The accounting procedure proposed in the Kasten-Inouye amendment ``is simply a device to conceal budget activity in 1986 and 1987 by attributing it to a past year,'' said OMB Director James C. Miller III in a letter to Sen. Mark Hatfield, a Republican from Oregon and chairman of the Senate Appropriations Committee. ``This is completely inconsistent with established budget accounting principles.''

Critics note that the US already gives generous amounts of assistance to Israel. Reflecting close historical ties and the strength of the Israeli lobby in the US, Israel now receives close to one-third of all US foreign aid. Moreover, since last year, the aid package has been entirely in the form of grants instead of the usual mix of grants and loans extended to other countries.

They say adding $500 million more to shrink the Israeli debt payment could require making cuts in other US aid programs.

The most vulnerable targets of such cuts, say Senate sources, are programs for famine relief and development in Africa, and US contributions to regional development banks for Africa and Asia. Says one Senate aide: ``Israel simply has more friends than Africa.''

Opponents of the Kasten-Inouye plan say they also fear reducing the Israeli interest payment could set a precedent that could be difficult to live with in the future. They note that other countries -- including Egypt, which also pays half a billion dollars in interest annually to the US on its military purchases -- are also forced to shoulder enormous debt burdens. Meanwhile, several poorer nations are verging on outright default.

Critics caution that even though the debt-relief proposal for Israel is only intended to last for one year, moves to restore the 11 percent rate could prove politically risky in the coming election year.

Even though the debt plan has been supported by the Israeli lobby in the US, Israel itself has not requested debt relief. Thus, the issue is not necessarily considered a litmus test of loyalty to Israel. Nevertheless, the supporters -- led by Senator Kasten, this year's leading recipient of contributions from pro-Israeli political action committees -- say they will continue to seek Senate support for the plan.

If objections to the accounting procedure are raised, when the appropriation's bill goes to the Senate floor next month, Kasten and Senator Inouye are expected to propose a substitute amendment. But facing rising budget pressures at home, Senate sources say garnering broad support for the measure could prove to be an uphill task.

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