[wvns] We cannot afford Israel
A Conservative Total for U.S. Aid to Israel: $91 Billion and Counting
By Shirl McArthur
Washington Report on Middle East Affairs
www.webcom.com/hrin/magazine/israel.html
With the turmoil surrounding the presidential election essentially
freezing Congress into inaction, this is probably a good time to take
another look at aid to Israel. The common figure given for U.S. aid to
Israel is $3 billion per year—$1.2 billion in economic aid and $1.8
billion in military aid. As impressive as this figure is, however,
since it represents about one-sixth of total U.S. foreign aid, the
true figure is even more remarkable. It is difficult, however, to
arrive at an exact number. Much of the money the U.S. gives Israel is
buried in the budgets of other government agencies, primarily the
Defense Department (DOD). Other subsidies come in a form that isn't
easily quantifiable, such as the early disbursement of aid, which
allows Israel to gain (and the U.S. taxpayer to lose) the interest on
the unspent money.
This year's appropriations bills for FY 2001, which began Oct. 1,
2000, include, in addition to the $2.82 billion in economic and
military foreign aid to Israel, an additional $60 million in so-called
refugee resettlement and $250 million in the DOD budget, plus $85
million imputed interest, for a total of at least $3.215 billion. In
addition, on Nov. 14, 2000, President William Clinton sent a special
request to Congress for an additional $450 million in military aid to
Israel in FY 2001, plus $350 million for FY 2002.
The package also included $225 million in military aid for Egypt and
$75 million in security assistance for Jordan. The $450 million for
Israel is not included in these calculations, because it is unclear at
this writing whether Congress will approve the package in the current
political climate.
Calculating Total U.S. Aid
Unquestionably, Israel is the largest cumulative recipient of U.S. aid
since World War II. Estimates for total U.S. aid to Israel vary,
however, because of the uncertainties and ambiguities described above.
An Oct. 27, 2000 Congressional Research Service (CRS) report, using
available and verifiable numbers, gives cumulative aid to Israel from
1949 through FY 2000 (which ended Sept. 30, 2000) at $81.38 billion.
On the other hand, last year the Washington Report on Middle East
Affairs estimated total aid to Israel through FY 2000 at $91.82 billion.
The CRS number surely is too low, because, although it does include
such things as the old food-for-peace program, the $1.2 billion from
the Wye agreement, and the current subsidy for "refugee resettlement,"
it does not include money from the DOD budget, on the grounds that
those funds are for joint research and development projects. Nor does
the CRS figure include estimated interest on the early disbursement of
aid funds. Last year's Washington Report estimate imputes an amount
for other aid (including the DOD) that may no longer be valid, based
as it is on a thorough study of three representative years. While this
year's estimate is more conservative, the results are still shockingly
high.
To the CRS number of $81.38 billion through FY 2000 can be added (with
details to follow):
• $4.28 billion from the DOD; and
• $1.72 billion in interest from early disbursement of aid, for a
total of $87.38 billion through Sept. 30, 2000. To that can be added
the $3.22 billion detailed above, giving a grand total of $90.6
billion total aid to Israel through FY 2001. Approval of Clinton's
special request for $450 million more in military aid would push the
number over $91 billion.
Defense Department Funds
A search going back several years was able to identify $3.423 billion
in specific DOD line items appropriated to Israel. Since that figure
includes only the programs that were uncovered, it is reasonable to
add 25 percent, or $856 million, to account for what was not found.
The largest items in the DOD budget were $1.3 billion for the
cancelled Lavi attack fighter project; $628 million for the ongoing
Arrow anti-missile missile project; and $200 million for the completed
Merkava tank. The fact that the U.S. military was not interested in
the Lavi or the Merkava for its own use and has said the same thing
about the Arrow would seem to invalidate the argument that these are
"joint defense projects.
Interest
Israel began receiving early disbursement of U.S. economic aid in
1982, and of military aid in 1991. It would be inaccurate to simply
apply the rate of interest to the amount of aid, because it has to be
assumed that the aid monies were drawn down over the course of the
year. In 1991 it was reported that Israel earned $86 million in
interest on the economic aid money deposited in the U.S. Treasury.
Since the period from 1982 to 1991 was a time of relatively high
interest rates, the figure of $860 million (86 x 10) seems a
reasonably conservative estimate for those 10 years. For the nine
years since 1991, a 6 percent rate was applied to one-half of the
economic aid, for a total of $324 million over the past decade.
On the military aid, the 6 percent rate was applied to one-half of the
military aid for the 10 years it has been disbursed early, for a total
of $540 million.
The impressive numbers for U.S. aid to Israel become even more so when
they, and the attached conditions, are compared with other Middle East
countries. The roughly $3.3 billion in annual aid compares with some
$2 billion for Egypt, $225 million for Jordan, and $35 million for
Lebanon. Aid for the Palestinian Authority (PA) is not earmarked, but
has been running at about $100 million. Furthermore, aid to the PA is
strictly controlled by the U.S. Agency for International Development,
and goes for specific projects, mostly civil infrastructure projects
such as water and sewers.
On the other hand, the U.S. gives Israel all of its economic aid
directly in cash, with no accounting of how the funds are used. The
military aid from the DOD budget is mostly for specific projects.
Significantly however, considering current events, one of those
projects was the development of the Merkava tank, which has been
encircling and firing on Palestinian towns in the West Bank and Gaza.
The only condition the congressional foreign aid bill places on
military aid to Israel is that about 75 percent of it has to be spent
in the U.S. In contrast with other countries receiving military aid,
however, who purchase through the DOD, Israel deals directly with U.S.
companies, with no DOD review.
Special mention should also be made of the details of the Wye
agreement. All of the $400 million going to the PA under the agreement
is economic aid, whereas all of the $1.2 billion for Israel is for
military projects and programs. These include $40 million for armored
personnel carriers and $360 million for Apache helicopters, again
significant considering current events.
Loans, The Cranston Amendment and Loan Guarantees
Currently, Israel owes the U.S. government almost $3 billion in
economic and military loans. Direct government-to-government loans are
included in the above numbers for total aid, because repayment of
several loans has been "waived" by the U.S. Israeli officials are fond
of saying that Israel has never defaulted on a loan from the U.S.
Technically, this is true. The CRS report, however, notes that from FY
1994 through FY 1998 $29 billion in U.S. loans have been waived for
Israel. Therefore, it is reasonable to consider all loans to Israel
the same as grants.
There seems to be much confusion about the so-called "Cranston
Amendment," named after the California senator who sponsored it in
1984. The amendment said, simply, that it is "the policy and
intention" of the U.S. to give Israel economic aid "not less than" the
amount Israel owes the U.S. in annual debt interest and principal
payments.
Since official economic aid to Israel has always been considerably
higher than the annual debt repayments, this is something of a
non-issue. Furthermore, since the amendment is simply a statement of
policy and intent, it may not be legally binding. In any event,
although the amendment was included in every aid appropriations bill
through FY 1998, it has not been repeated in the FY 1999, 2000, and
2001 appropriations bills.
The amount of U.S. government loan guarantees to Israel was not
included in the above numbers, because they have not cost the U.S. any
money (yet), although they are listed as "contingent liabilities (that
is, they would become liabilities to the U.S. should Israel default).
Nevertheless, they unquestionably have been of tangible financial
benefit to Israel. The major loan guarantees issued by Washington have
been $600 million for housing between 1972 and 1990; the much
publicized $10 billion for Soviet Jewish resettlement between 1992 and
1997; and some $5 billion for refinancing military loans commercially.
Currently, the total U.S. contingent liability for Israeli loans is
about $10 billion.
The Neeman Agreement
After Israeli Prime Minister Binyamin Netanyahu told Congress in 1996
that he wanted to reduce the level of U.S. economic aid to Israel,
Israeli Finance Minister Yaacov Neeman met with members of Congress in
January 1998 to negotiate the details. After much backing and
forthing, they reached agreement that Israel's then-$1.2 billion in
economic aid would be decreased annually, beginning FY 1999, by $120
million, and the $1.8 billion in military aid would be increased by
half that, or $60 million.
As a little-reported part of the deal, the amount of military aid that
Israel was allowed to spend in Israel would be increased by $15
million per year. From FY 1988 through 1990 Israel was allowed to use
$400 million of its $1.8 billion U.S. military aid in Israel.
Beginning in FY 1991 that was increased to $475 million. As a result
of the Neeman agreement, beginning in FY 1999 the aid appropriations
bill gave the amount to be spent in Israel as a percentage of the
total, rather than a stated amount. This maneuver helped hide from
U.S. defense contractors the fact that the U.S. direct subsidy to
their Israeli competitors was being increased by $15 million per year.
For FY 2001 the stated percentage works out to $520 million. None of
this is included in the above figures, because it does not represent a
direct cost to the U.S. taxpayers. It is clearly an indirect cost,
however, in terms of lost tax revenue and lost business for American
companies.
Shirl McArthur, a retired foreign service officer, is a consultant in
the Washington, DC area.
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