Why Israel Can Never Repay the Loans to be Guaranteed by the US

By Dr. Israel Shahak

All conceivable questions have been discussed about scheduling and conditions of the $10 billion in loan guarantees requested by Israel from the US government except one: How can Israel possibly repay such a huge sum? After all, if Israel cannot repay these loans, the burden will fall upon the guarantor, the US government, which in the last analysis means upon the US taxpayers.

Such a repayment would in fact amount to foreign aid under another name. Because of the deterioration of economic conditions in the US, no matter what forms of pressure the American Israel Public Affairs Committee (AIPAC) may use, the Congress will be reluctant to offer Israel $10 billion in an extra aid gift.

Given these realities, the best guess would be that both sides already know that since Israel is not capable of repaying the US guaranteed loans, they regard the guarantees as a gift to Israel in disguise.

A Gift in Disguise

Yitzhak Shamir and other Israeli government spokesmen, as well as spokesmen for Israel's US lobby, constantly reiterate that Israel has so far been repaying its debts on time. They don't mention that the US pays the interest on those loans, and eventually forgives them. If the US did not do this, Israel's case would soon be comparable to that of the USSR and other debt-ridden states which used their past good repayment records as justification for borrowing more and more, until finally they defaulted on all their loans. The situation is described by Israeli economist Zvi Timor, the editor of Al-Hamishmar, in an article entitled "Dignified Behavior Under Pressure" in his journal's September 17 issue:

"For years we have been repaying all our debts from what we've been receiving as American aid. Every year Israel gets $1.3 billion of economic aid, of which $ 1.1 billion goes for debt repayment."

In other words, 85 percent of American economic aid "is not spent as it is supposed to be. From private but reliable sources, I know that last year the sum in question reached $1.2 billion, i.e. 92 percent of the received "economic aid." It means that the American taxpayers have been, without their knowledge, repaying the Israeli debt for years. Ordinary Americans would be overjoyed if they learned that their debts were being repaid by somebody else. If Israeli debt repayment goes under the name of "economic aid," it is to conceal from the US public the knowledge that they are repaying somebody else's debts.

The deception is nevertheless obvious for the simple reason that the expenditure of between $11 and $12 billion over 10 years would otherwise have produced some visible effects in Israel. None, however, can be seen.

According to the Congressional Research Service issue brief, "Israel: US Foreign Assistance Facts" by Clyde R. Mark (updated May 8, 1991), Israel also benefits from periodic US government waivers. From 1974 to 1984, the United States waived repayment of part of Israel's annual FMS (Foreign Military Sales). Since 1985, the US has waived repayment of the total FMS. The waiver avoids establishing a program and personnel to oversee the program, as would be required if the same amount were given as a Military Assistance Program grant.

What this means is that since the entire value of the enormous military aid the US has granted Israel over the years is in fact a gift, Israel does not owe the US very much. The brief states further that "the United States gives all ESF (Economic Support Funds) directly to the Government of Israel rather than under a specific program. There is no accounting of how the funds are used. " No other recipient of American aid benefits from such conditions, which seem almost to have been designed to beget fraud. And fraud they did beget.

In fact, fraud and deceit have pervaded Israeli utilization of US support. Even the magnitude of this support has been misreported. Contrary to the data routinely cited by the Western press, combined US military and economic support to Israel has amounted not to $3.1 billion yearly, but, as Timor stated, "in sum total, without counting the guarantees, the US government helps Israel financially to the extent of about $5 billion."

In this sum he includes the value (to Israel) of "deductions [from US income tax] accruing to funds raised by the United Jewish Appeal. " Incidentally, the bulk of these funds, although they are put at the disposal of the Israeli government, remain in the US. They are used by AIPAC and other segments of the Israeli lobby in the United States. In this way, the US administration actually subsidizes lobbying power used against itself.

Other forms of covert American aid cited by Timor are discussed by Yossi Verter and Yigal Laviv in an article headlined "The American financial aid to Israel is much higher than previously known" in Hadashut of September 20. Their estimate of the total amount of support received by Israel from the US roughly concurs with Timor's.

Relying on "documents leaked by the State Department, which were published in part by the Wall Street Journal, " and also "on sources in the Congress" (and apparently on Israeli sources as well), the writers conclude that "financial aid which Israel receives from the US is much higher than published figures indicate, largely because Israel uses the received money for complex financial speculation schemes which are without exception detrimental to the interests of the American taxpayer."

They also assert that "between 1974 and 1989 Israel received from the US over $16 billion in the form of military aid, but no one in the US really expected that any part of this total would ever be repaid."

Asking About the Future

But let us leave the past aside, and ask about the future. Right now, the US pays existing Israeli debts to commercial banks and allows their recycling. The question that therefore remains is, how can Israel repay the additional principal and interest on the $10 billion in loans? Or, alternatively, can Israel renounce the guarantees and impose an austerity regime in their stead?

The latter option is already advocated by such Israeli ministers from the extreme right as former Chief of Staff and present Minister of Agriculture Rafael Eitan. After all, in order to repay this sum each year, Israel would have to increase its exports by at least $4 billion, or more if the profits from such exports did not reach 50 percent.

The last officially recorded value for Israeli exports was some $9.4 billion in 1988. The value of imports was $12.3 billion, yielding a trade deficit of 23.2 percent, according to the "Statistical Abstract of Israel, 1989." Since Israel is now in recession, the value of its exports could not have increased much since then.

In fact, one particular export, that of weaponry, has collapsed since 1988. The value of exported weapons, one-third of which went to Colombia alone, amounted in 1988 to $1.5 billion. The forecast for the next fiscal year was that this particular export would decrease to $213 million.

Two major markets for the Israeli exports now are North America ($3.1 billion, of which $3 billion goes to the US) and the European Common Market ($3.2 billion). Israeli exports to the US were composed chiefly of polished diamonds ($1.2 billion), medicines and chemicals ($180 million), and clothes and textiles ($125 million).

Only the gullible can expect that Americans, under present economic conditions, can be influenced by AIPAC to buy more Israeli diamonds in quantifies sufficient to cover the repayment of the new loans, to be borrowed at the rate of $2 billion per year for five years. An increase of Israeli exports by $4 billion, or some 43 percent in a single year, is, as Timor clearly recognizes, absolutely impossible.

Timor is right in pointing out that without the US guarantees, "a state like Israel, which already has an enormous foreign debt per capita, enormous defense budget, enormous budgetary deficit, and quite sizable trade deficit, would not be considered an attractive borrower on the international financial market. " It can be mentioned in passing that an Israeli budgetary deficit exists when the notyet granted American guarantees are already counted on its revenue side! All these facts only reinforce disbelief in Israel's ability to ever repay the loans guaranteed by the US.

The Austerity Alternative

The alternative option of renouncing the guarantees and imposing an austerity regime would also have dire consequences. The proposed reduction of all salaries by 10 percent would yield the equivalent in Israeli shekels of $2 billion. In addition to the social consequences of this proposal, a hefty proportion of Israeli wage-earners would thus rapidly land below the poverty line.

Nor would these sacrifices yield the intended economic effects. As Timor reminds his readers, Israeli shekels are worthless outside of Israel. All ongoing Israeli economic development, insofar as it depends on foreign machinery, spare parts, or know-how would therefore have to be halted. As Timor informs, "the average share of imports in [Israeli] investment is very high, sometimes as high as 80 percent."

His conclusion, backed by some additional arguments not mentioned here, is: "Any savings in shekels are bound to be quite ineffective, because shekels are not dollars."

The prediction that Israel cannot possibly repay the loans which the US is requested to guarantee rests on firm grounds. The data upon which this prediction is based, although not publicized by the media before the current clash of the US administration with the Israeli government and with the Israeli lobby in the US, were surely known to the advocates of the guarantees from the start. This inescapably leads to the conclusion that the guarantees were originally conceived as a grant in disguise. It would have been more honest to call them a gift.

Israel Shahak, a Holocaust survivor and retired professor of chemistry at the Hebrew University in Jerusalem, is chairman of the Israeli League of Human and Civil Rights. His monthly translations From the Hebrew Pressare available to Washington Report readers for $25 a year.