Request for US Rescue Likely In Israel's Economic Mess

By Donald Neff

Only nine days after taking office as Israel's new minister of finance, Shimon Peres moved forcefully to shore up the disintegrating Israeli economy that included staggering foreign debts ($9 billion to the US alone), 18 percent inflation, 7 percent unemployment, and a GNP of as low as 1 percent. Peres devalued the shekel by a total of 13 percent; slashed subsidies on staples such as milk (26 percent), eggs (17 percent), and bread (12 percent); and in all, proposed trimming $550 million from Israel's $26.5 billion annual budget.

While none of that went nearly far enough to grapple meaningfully with Israel's staggering economic problems, it appeared to be at least a start until, that is, Jan. 8 when someone discovered an item tucked away in the supposed austerity budget devoted solely to providing perks for Peres, totaling nearly $600,000—close to 10 percent of his proposed cuts. Complained a leftist critic, Knesset member Dedi Zucker: "How can Peres demand others to tighten their belts when his office is sinking in extra fat?"

Peres' supporters maintained the funds were allocations innocently overlooked from the previous budget, but the uproar was certain to cause opposition to the budget in the Parliament when it comes up for adoption.

While Israelis struggled with budget reform, the Reagan administration was leaving office, as it began, by putting Israel at the top of its foreign aid recipients. Reagan's final budget included $3 billion for Israel out of a total foreign aid bill of $14.8, Egypt was second with $2.3 billion, and Pakistan was third with $621 million.

The request, if passed by Congress—which is likely since it has approved similar aid levels for Israel since 1984—would bring Reagan's aid to Israel to an astonishing total of $25.8 billion in eight years. From its birth in 1948 to 1968, total US aid to Israel had amounted to only $1.3 billion. It began climbing dramatically under Presidents Nixon and Ford, reaching nearly $8 billion in eight years, and then soared under Jimmy Carter, totaling $10.7 billion in four years.

Unique to the Reagan administration, however, was a congressional gift that greatly enhanced the value of US aid. The action turned all aid to Israel after fiscal year 1984 into grants that do not have to be repaid. Up to that time, aid to Israel had generally been half in loans and half in grants. Part of Congress's generosity was caused by Israel's previous economic crisis, which reached catastrophic levels in 1984 as a result of the $1 billion cost of Israel's invasion of Lebanon. This followed a scandal in 1983 that practically devastated the country's banking system and caused a $2.5 billion government buyout to protect Israeli investors.

New drains on Israel's outmoded and wasteful socialist economy include the heavy costs of suppressing the Palestinian uprising in the occupied territories. Although such figures have been kept secret recently, official estimates during the first two months of disturbances put direct military costs at $320 million plus an equally high economic cost in terms of business losses, particularly Israeli trade with the West Bank. When the uprising in December 1987 began, the West Bank was Israel's main export market.

The outlook then was for another massive rescue operation by the US. It responded to Israel's distress in 1984 not only by turning loans into grants, but by providing Israel an extra $1.15 billion in supplemental aid in addition to its normal $3 billion annual appropriation. US analysts predict a similar amount or higher of rescue aid will soon be requested by Israel.

Donald Neff's latest book, Warriors Against Israel, has just been published by Amana books of Brattleboro, VT. Available from the AET Book Club, it is the concluding volume in his Warriors trilogy on US-Israeli affairs 1956-73.