Uncle Sam keeps the wolf from Israel's door
Washington — Prime Minister Menachem Begin's biting attack on the United States, while rejecting vehemently any taint of vassaldom, has focused new attention on Israel's extraordinary economic dependency on the US. Israel today is, indeed, all but totally dependent on US economic support, both overt and indirect.
A fragile and quite indispensable economic lifeline connects Tel Aviv to Washington, providing at no cash cost the weapons Israel could not buy elsewhere in the world, even if it were able to pay. It all adds up to an economic package exceeding $3 billion per year. Any Israeli resentment and bitterness at their country's economic dependence would be understandable because the total aid package, including ripple (multiplier) effects, approximates almost one-half of Israel's national income.
Mr. Begin's confrontational posture vis-a-vis his US sponsor, however, may be as risky as the resentment is real, because Israel is totally and most uncomfortably vulnerable to the whim and indulgence of the US Congress, which must authorize or at the very least tolerate the complex and multi-dimensioned array of US aid programs.
South African and Canadian Jewish communities furnish some $150 million yearly to Israel, and West Germany still pays rather more than $300 million in reparations from World War II. Otherwise, the entire burden of economic support falls on the United States, covering the current balance-of-payments deficit of
US public aid over the last three years averaged $3 billion annually, and the 1982 expenditure may once again rise - a rare counterexample to the slashed budgets of the administration's domestic programs. Almost half of US official aid consists of grants or instantaneously forgiven loans. The remainder is added to Israel's rapidly escalating foreign debt, which now approaches $20 billion, equivalent to the unprecedented level of (almost) $5,000 per capita.
Military ''sales'' constitute two-thirds of the total official aid, and Congress in the Arms Export Control Act of 1976 created a special financing device in order to reduce the visibility of this aid and forestall possible public criticism.
Thus, for example, in fiscal 1980 $1 billion worth of foreign military sales were authorized for Israel's account. Immediately following the ''sale,'' however, $500 million of the loan was canceled and the residual $500 million was added to the $7-plus billion the State Department estimates that Israel now owes the US government. This debt involves grace periods of up to 10 years prior to any repayment.
As a consequence of Israel's worsening economic malaise since 1973, it can service this debt only in the formal sense that installments are paid when due but are in fact funded through new US aid each year.
A further layer of aid flows from US-based Jewish organizations. The IMF reports such flows globally at almost $1 billion per year, largely from the US. Such charitable contributions, except for Israeli Development Bonds, are fully tax-deductible and hence are tax expenditures in the US context. At one time, hearings under Sen. J. William Fulbright revealed political uses of such funds; today United Jewish Appeal or Hadassah contributions have funded access roads in the Golan Heights or settlements in the occupied territories on the West Bank, but most flow into the Israeli economy.
Mr. Begin's critical economic stake in perpetuating US assistance extends still further into a third and murkier tier of economic assistance. For example, military sources indicate that some of the weapons transferred to Israel are underinvoiced at special discount prices, which particularly offends the Department of Defense (DOD) when Israel subsequently profitably sells US-source equipment at higher prices, as occurred recently with Iran.
Another form of implicit aid is a net of specially crafted contracts between the US DOD, or defense suppliers within the US, to support the Israeli arms industries. Secretary of State Alexander M. Haig Jr. recently intimated that these would be expanded in the future, providing critically needed cash infusions for those firms. Israel Aircraft Industries has been particularly insistent on such support and has received subcontracts for manufacturing components for the F-4 and F-15 fighters.
In another transaction an Israeli shipping firm was accorded subsidies under the US Maritime Administration's shipbuilding program, but the precedent was quickly frozen when Burmah Oil, a British firm, applied for similar support.
Further assistance outside the formal foreign aid structure is the extensive and sustained support for Israeli universities and research institutions that is funded by the Department of Education, the National Institute of Health, and other US agencies in the form of grants and contracts. These reportedly aggregate almost $100 million per year.
The final tier of economic assistance involves special concessions on Israeli exports to the US. In spite of its high per capita income, over $3,500 per year, Israel has been specially designated as a ''developing country,'' which accords it reduced or zero tariffs under the Generalized System of Preferences. As a result, 96 percent of its $1 billion exports to the US enter free of any tariffs.