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Can Israel get extra US aid without reform?

By DAVID R. FRANCIS / May 1, 1985


Does Israel deserve an extra $1.5 billion in US foreign aid? Consulting economist Thomas R. Stauffer doesn't think so. He maintains that Israel's government has not yet launched a tough enough austerity program.

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Up to now, Secretary of State George Shultz had wanted more economic reform from Jerusalem before Congress provided extra aid. Israeli newspapers have reported that the Reagan administration sought a major devaluation of the shekel and decreases in the automatic indexation of wages and social benefits. Mr. Shultz also wanted Israel's central bank to create less money in order to reduce inflation. He specified reforms he wanted in an exchange of letters with Prime Minister Shimon Peres.

There is some suspicion within the administration that Shultz may have decided to go ahead and request the additional aid from Congress whether or not Israel has taken sufficient action to remedy its economic problems. One reason, it is thought, could be political. Approval of the aid package might take some of the sting out of the Bitburg affair in the Jewish community. Another may be that Congress was moving ahead with extra aid anyway.

The House Foreign Affairs Committee approved a $14.5 billion foreign-aid package last month which included the extra $1.5 billion for Israel. Already Israel was to receive $3 billion in arms and cash grants under the bill, which is for the fiscal year beginning next Oct. 1.

The full House may act on the measure this week.

A committee aide said Israel has given some assurances it will make economic reforms: ``There are benchmarks to ensure implementation of a program over time. The Israelis know better than we do what they have to do.''

One forecast is that the bill will sail through the entire Congress by the end of this month.

David Said, executive director of the National Association of Arab Americans, accuses the Israel lobby of doing ``an end run'' on the administration in Congress, ``removing the ability of Secretary Shultz to require that Israel gets its economic house in order.''

But Israel's economy minister, Gad Yaakob, has compared the Shultz demands for economic reform to ``some teacher giving us marks -- good or bad.'' In an interview with the Associated Press, he said the United States ``would make a great mistake if it presented demands and did not content itself with advice, since that way it would not strengthen Israel and would cast doubt on [Israel's] sovereignty.''

A State Department source indicates Israel's government may be more bold about reforms after elections in the Histadrut, the nation's important labor confederation, early this month.

Mr. Stauffer contends that Israel must decrease its ``chronic dependence on foreign aid.'' This, he says, ``reflects the chronic inability of its governments to live within their means -- consumption and expenditure have risen steadily since independence, always outpacing earned income.''

``This consumption,'' he added in recent testimony to a Senate subcommittee, ``has been financed by growing demands for aid or, most recently, by a daring -- if not dangerous -- accumulation of short-term foreign debt via the commercial banking system.''

Mr. Stauffer is not the favorite economist of the Israelis or their backers in the US. They consider him pro-Arab and anti-Israel. His testimony will not make him any more popular.

One of Stauffer's main points is that Israel has a real per capita ``income'' that is among the dozen highest in the world (excluding the oil-exporting ``mini-states'') -- higher, for instance, than that of Ireland or Italy, and close to that of West Germany and Japan. Stauffer bases this claim on a 1982 study by the European Community and the Bank of Israel's measure of income. He puts Israel's per capita income at more than $9,000, equivalent to about 70 percent of the figure for the US.

A study by University of Pennsylvania economists, however, calculates that the per capita purchasing power of Israelis is about 52 percent of Americans. And Uri Oren, press consul of Israel in New York, says the average employee in Israel makes only $5,500 -- or some 45 percent of the US level.