The US Pays $4 Billion in Interest on Money It Borrows to Give Israel

By Frank Collins

For the past 15 years, Israel's ailing economy has been saved from going under by generous grants of American money, neither to be accounted for, nor ever to be repaid. The catch is that the United States has had to borrow the money for the grants freely given to Israel for military and economic assistance. Interest-bearing and repayable US loans to Israel were fully replaced by outright grants in 1985.

The required borrowing might have been of little importance to American taxpayers if the amounts of money involved were small and if the money were being expended for purposes in accord with America's national interests.

Because of the relentlessness of compound interest, however, the debt plus interest incurred by the US government from the borrowing for these grants has grown to more than $55 billion. This is a debt comparable in magnitude to the total involved in the bankruptcies of savings and loan banks in the US in recent years. That debt, which has been incurred by the federal government under the savings and loan deposits guarantee legislation, is generally considered by economists to be a fiscal disaster. Little has been said, however, about federal debts resulting from taxpayer grants to Israel. Both programs are financed by borrowing that requires the sale of US Treasury bonds. These must ultimately be redeemed by American taxpayers.

For the fiscal year 1990, which began Oct. 1, 1989, compound interest on the federal government debt that had accumulated from grants to Israel was over $4 billion, an amount even greater than that year's grant of $3 billion in US military and economic aid to the Jewish state. The effective cost to American taxpayers of the compound interest on the past debt, plus new grants for 1990, was, therefore, $7 billion, $1,600 for each of Israel's 4.5 million citizens.

The situation will progressively worsen with each passing year. If the present policy of annual $3 billion grants to Israel continues, and present interest rates remain stationary, in five years the amount borrowed by the US government to support Israel will be just short of $100 billion. The interest payable on this debt in fiscal year 1994 will be $8 billion, with the interest continuing to spiral upward year after year.

The table on this page outlines the situation with regard to the debts incurred by the United States arising from its military and economic assistance to Israel.

Discontinuance of the $3 billion in annual grants to Israel in fiscal year 1991 (which begins Oct. 1, 1990) would lighten, but not eliminate, the fiscal load on US taxpayers due to the accumulated debt. If the grants were stopped now, the debt in 1994 would be approximately $80 billion, already a savings of almost $20 billion. Savings on the debt would increase in the succeeding years.

Of the fiscal year 1990 US foreign aid package of $14.65 billion, $3 billion went to Israel and $2.278 billion went to Egypt, all in the form of grants. The value of the grants on a per capita basis, exclusive of compound interest costs, was $670 for Israel and $40 for Egypt. The remaining $9.09 billion in the US foreign aid package had to suffice for all of the Third World.

As in the case of Israel, foreign aid loans to Egypt were converted into outright grants in 1985. This had similar consequences with respect to the loading of American taxpayers with a huge debt from the operation of the law of compound interest. The money borrowed by the US for the grants to Egypt, plus compound interest, amounted to approximately $10 billion at the end of the fiscal year 1989 and will continue to escalate thereafter.

Israel Not Accountable for US Funds

The American grants to Israel go into the general funds of the Israeli treasury. Expenditures of these funds do not receive the scrutiny of American accountants. This lack of accountability by Israel is unique among countries receiving US aid. Under procedures applied to Israel alone, US earmarking of the funds for specific expenditures is so difficult that the Israelis, in effect, are free to spend the money as they will. This means that the American grants enable Israeli discretionary spending on projects such as the invasion of Lebanon, the building of Jewish settlements in the occupied Palestinian territories, and military repression of a civilian uprising. The list of such Israeli actions contrary to American politics, partially financed by American taxpayers, is a long one.

The costs of the continuing grants to Israel, the consequent escalation of the US national debt, and the costs of compound interest on this debt are burdening the American budget at a time when unmet funding needs in the United States are growing rapidly. It is sufficient to mention the homeless, the drug problem, the schools, the highways and the environment.

In Israel's Interest

Finally, there is legitimate concern over whether the American grants are in the best interests of Israel itself. Besides the opportunity that the money gives for the Israelis to undertake projects contrary to American interests, it enables the Israeli government to subsidize uneconomic institutions such as the kibbutzim, the consortium of Histadrut enterprises KOOR, the Jewish settlements and above all, the bloated military establishment. The American grants foster the common Israeli attitude that, no matter how long the impasse with the Palestinians and the other Arab states continues, and no matter how uncompromising the Israeli stand, Uncle Sam will always pick up the tab. In the six years that I have spent in the Middle East, every Israeli I've met has been convinced that the outpouring of American aid would continue as long as Israel asked for it.

Frank Collins is an American free-lance journalist who divides his time between Jerusalem and Washington, DC He has a Ph.D. in physical chemistry from Columbia University.