Friends of Israel push to cut dependence on US purse strings
Every American family of four is making a contribution through taxes, on average, of something like $50 a year to Israel. In this election year, President Reagan and the Democratic presidential candidates are enthusiastically expressing their approval of such backing for Israel.
But the Jewish community feels somewhat anxious as to whether that support could fade after November. American official aid, including military help, exceeds 10 percent of Israel's gross national product (GNP, or the output of goods and services), and private money flows contribute 4 or 5 percent more.
''Israel cannot depend for long periods of time on the type of economic support that she is receiving from the US,'' writes Elmer L. Winter, the cofounder of Manpower Inc. ''It is far too risky to operate on this basis.''
Mr. Winter is chairman of the Committee for Economic Growth of Israel, consisting of 115 American business executives and 28 Israeli executives. The group recently published his plan ''to make Israel financially independent in 1990.''
Undoubtedly most Americans want Israel's existence to continue. But there has been increasing criticism in the US of specific Israeli policies in recent years , such as the invasion of Lebanon and the expansion of Jewish settlements in the West Bank.
So far there has been no sign the Reagan administration has used its financial leverage in an attempt to change Israeli policies. People like Winter, however, wonder if that might change.
Indeed, an analysis of the Israeli economy by Stanley Fischer, an economics professor at the Massachusetts Institute of Technology, indicates that the US lever is getting longer.
That is one key reason the government of Yitzhak Shamir is at last tackling Israel's economic mess. Curiously, it is not so much the accelerating inflation, now running close to 200 percent a year, that has prompted action. At least until last fall, Israel's high rate of inflation had not been a dominant issue. It was talked about, but there was no groundswell of public insistence that the rate be reduced, notes Professor Fischer, who has spent considerable time in Israel studying the economy.
He explained that the indexation of pensions, long-term savings, and wages had enabled consumers to keep up with inflation.
But public indifference to inflation may well have faded last fall. In cutting the budget, the government reduced food subsidies. It also sharply devalued the shekel, raising the price of imports. Real wages, Mr. Fischer figures, may be down 15 or 20 percent. That is why 70,000 workers in Israel were on strike or staging limited work stoppages this week. Their standard of living has been cut drastically. And Finance Minister Yigal Cohen-Orgad has warned Israelis that living standards must remain about 10 percent lower if the nation's economy is to get in shape.
The exercise should reduce inflation. But the main purpose is to slash Israel's massive international payments deficit. Israel has been living beyond its means, borrowing abroad to do so.
The gross foreign debt of Israel amounted to $25.2 billion in 1982. The net debt, after subtracting foreign assets such as those held by Israeli banks operating abroad, was $13.7 billion. That net debt is equivalent to 62.9 percent of the nation's total output of goods and services and 140.7 percent of exports. With a real interest rate of 5 percent (the interest rate after subtracting the inflation rate), the annual interest cost alone of this debt would be above 3 percent of gross national product.
''This,'' Fischer states in a working paper for the National Bureau of Economic Research, ''would be a manageable amount in steady state. But the ratio of the net foreign debt to GNP is growing because of the size of current-account deficits financed through borrowing. By the end of 1982, net debt service amounted to nearly 25 percent of exports and more than 10 percent of GNP.''
Israelis, he notes, worry that ''the need to rely on external financing, some of it in the form of grants, makes for excessive vulnerability to outside pressure, economic and political.''
In an interview, Fischer guessed that net debt rose $2.5 billion to $3 billion more last year. ''At that rate, the pressure begins to get out of control,'' he said.
The tough economic measures taken by the Israeli government, if maintained, ''could get the situation back to something manageable,'' the MIT professor adds. But undoubtedly it will also cause a slump.
Israel has a special reason to avoid recessions. Faced with hard times, some of its people emigrate to the US or elsewhere. And Israel, for political and military reasons, wants more Jews to settle in Israel (or the West Bank), not to have them leave. Its governments, under a succession of leaders, have worried about high Arab birthrates within and without Israel.
Israel suffered a recession, double-digit unemployment, and net emigration in 1966-67. That, says Fischer, ''burned as deep a concern about unemployment in the memory of policymakers and the public as the Great Depression did in the United States.''
That is why Israel has tolerated so much inflation in recent years and only now is tackling its economic disorder, forced to by massive balance-of-payments deficits. And that's why Mr. Winter wants to shape US-Israel economic ties in ways that will make Israel financially independent in six years.