US Aid to Israel: Will It Shrink?

No other nation in the world receives more foreign aid from the United States.

But as Israel approaches its 50th anniversary as a nation on April 30, the two countries are expected to soon announce plans to snip one of the purse strings.

The $3 billion a year that Israel has received from the US since 1985 is likely to be reduced to a little more than $2 billion in military aid alone. All the economic aid - now $1.2 billion annually - would be phased out over 10 years or less.

Negotiations are ongoing. But if the expected cuts come, it could significantly alter the nature of this key US relationship as well as other relationships in the Middle East. Less money for Israel, for example, means a big drop in US dollars - now $815 million in economic aid annually - flowing to Egypt. US aid to the two nations is linked by the Israel-Egypt peace accord signed in 1979. Cuts could free up more aid for other nations in the Mideast or elsewhere.

While some are calling the cuts "historic," a sign of dwindling support for Israel in Congress, and a coming of age for Israel's economy, others say the aid reductions are a budgetary shell game.

They're "fake," says Khalil Jahshan of the National Association of Arab Americans in Washington. He notes that Israel's negotiators are seeking to take half of the current $1.2 billion in US economic aid and put it into Israel's military aid package.

In January, when Israeli Finance Minister Yaakov Neeman first proposed eliminating all economic aid over 10 to 12 years, starting in 2000, he also sought to boost the $1.8 billion in US funds for the military by $600 million per year over the same span.

"The dangers in the region have increased," says the American Israel Public Affairs Committee (AIPAC), one of the most powerful groups that lobby Congress.

The Israel-US relationship is often described in Washington as "unshakable." Since 1949, the US has provided Israel with more than $70 billion in economic and military assistance to help it survive and thrive in an often hostile Arab region.

The first signal that Israel was ready to wean itself from US aid came in July 1996. Israeli Prime Minister Benjamin Netanyahu told a joint session of Congress that, in the next four years, Israel "will begin the long-term process of gradually reducing the level of your generous economic assistance."

Some say Mr. Netanyahu's move was a preemptive strike. The negotiations come at a time when a budget-conscious Congress is effectively trimming foreign aid.

Last year, the Foreign Operations Subcommittee of the House Appropriations Committee put a cap of $5.4 billion on aid to nations in the Middle East. To provide Jordan with $100 million in support of a Jordan-Israel peace pact meant taking $50 million, apiece, from US aid to Israel and Egypt.

Rep. Sonny Callahan (R) of Alabama, chairman of that subcommittee, is expected to insist on that cap again in fiscal 1999.

"The dynamic has changed for this [aid] in Congress," notes one congressional aide. "Israel's lock is gone."

Some in Congress privately argue that Israel has reached a level of economic prosperity that no longer requires aid. Indeed, Ohad Maroni, lead negotiator for the Israeli embassy in Washington, says the talks are occurring now because "the [Israeli] economy is doing well."

Israelis, on average, had an income of $17,800 in 1996, not far behind the $21,100 per capita income of Americans that year. It is an income level well above that of Spain, close to that of Britain, and greater than that of people living in poorer American states.

The details of the economic-aid cut are still being negotiated. According to sources close to the talks, Israel wants the aid phased out evenly over at least 10 years. The US would like a bigger chunk up front, starting in fiscal 1999, and an end to aid faster, say, in eight years.

There is also some question of whether Israel would get the full $600 million extra in military aid it wants, and how fast the annual amount would reach that sum.

Israel also wants to be able to spend the $600 million with Israeli firms. Currently, three-quarters of US military aid must be spent on equipment from US companies.

Still, some in Congress are asking if a jump in military aid to Israel (with no comparable increase in the $1.2 billion in military aid to Egypt) would be wise at a time when the peace process between the Palestinians and Israel has run into trouble.

It is a sentiment echoed by the Arab community. "I don't see why Israel needs an expansion in its military when it already has hegemony over the region," says Mr. Jahshan. "The timing could be disastrous."

Also expected to be included as part of the aid-reduction deal is some forgiveness of the debt Israel owes the US. Israel's total external debt amounts to $39.3 billion, of which about $3 billion is directly owed Uncle Sam. It costs Israel some $370 million a year to service the US loans.

Until the final deal is announced, it won't be known how big the reduction in total US aid will be. But given the history of the relationship, some observers are concluding it will be small. "At the end of the day, there will not be a substantial reduction at all," predicts Duncan Clarke, a professor of international relations at American University in Washington.

Arab-American leader Jahshan says the current $3 billion US aid total (about $580 per Israeli) is misleading. He says some studies show that other, less visible US aid bring the total closer to twice that amount.

For example, in addition to the $3 billion, Israel gets $80 million for helping settle new Jewish immigrants from the former Soviet Union and Ethiopia. In the past eight years, Israel has had to bear the cost of absorbing 800,000 immigrants. As a ratio of the Israeli population, says AIPAC, that influx is "equivalent to the entire population of France moving to the US."

The US also has provided $7.9 billion in guarantees on loans taken by Israel for housing or settling Soviet Jews in Israel. Other aid includes $50 million in antiterrorism funds. And since 1986, the US has provided Israel more than $500 million in grants for research and development of the Arrow antimissile missile. Some say that is aid; others say it is a joint research project of value to the US.