Israel counts on emergency aid from US; Congress expected to OK extra funds, but push for economic reform

Beset by soaring inflation, falling revenues, and rising unemployment, Israel is expected to reach out for a special emergency stipend this year and a major increase in aid next year from its chief ally and financial supporter - the United States.

And there are few signs that the Israeli government will have any trouble getting the additional help it seeks from a new Congress.

The Reagan administration is on record as saying any increase would have to be carefully considered in the context of Israel's internal plans for economic reform. And it does want assurances that more US aid would find constructive use and not simply perpetuate the current crisis.

''By pouring in huge amounts you can make reform even more difficult,'' one administration official notes.

But the administration has been weighing the idea of a 50 percent increase in general US foreign aid, and Secretary of State George P. Shultz has described Washington's commitment to Israel's security and well being as ''ironclad.''

Also, the administration, which this fall has been discussing long-range ways to increase Israel's economic growth and trade through a new joint economic development group, clearly does not want to destabilize Israel's new unity government headed by Shimon Peres. President Reagan recently promised emergency help in the event of any Israeli balance-of-payments crisis.

Congress, which in recent years has increased appropriations for Israel beyond administration requests, appears even less inclined than the executive branch to set any conditions on a hike in aid.

A key congressional source says he senses no such ''appetite'' on Capitol Hill. ''I see Congress playing its traditional role in being very sympathetic and supportive, and resisting any tendency to dictate. It recognizes that Israel is a modern, sophisticated democracy that knows its own problems.''

Indeed, Congress, in response to Israel's pressing economic problems (which include heavy military expenses and overseas debts of $23 billion - as much as Israel's annual budget), has recently been liberalizing the terms of its help.

This year, for the first time, US aid to Israel was given entirely in grants rather than as a mix of gifts and loans. And to help with Tel Aviv's cash flow and balance-of-payments problems, the entire chunk of economic aid - $1.2 billion for fiscal 1985 - was given in advance to Israel last month.

Congress also recently passed a resolution which, while not binding, calls for annual US economic aid to Israel at least high enough to cover Israel's yearly debt repayment to Washington. Israel owes the US about $9.5 billion.

Although losing a key ally in the recent election defeat of Rep. Clarence Long (D) of Maryland, chairman of the House subcommittee responsible for foreign aid, pro-Israel political groups in Washington insist the new Congress gives them no cause for concern.

''It looks as much or even more pro-Israel than the last one,'' says one Israeli supporter, who asked not to be identified.

Currently, Israel nets 27 percent of US foreign aid - more, both in bulk and per capita, than any other country. During the last 33 years the US has earmarked $28 billion for Tel Aviv. About two-thirds of that total has been in the form of military aid. The fiscal 1985 mix of economic and military help voted by Congress in October amounts to another $2.6 billion.

Although few specifics have surfaced as yet in the annual fall aid talks between US and Israeli officials, the Israeli request for help next year is expected to amount to an additional $1.5 billion - about half in military aid and half economic help. And there has been some informal talk of as much $750 million as emergency supplement.

But, says one congressional source, ''I think the key question will be whether or not Israel's foreign currency reserves are still down in January or February.'' The aid talks will resume here before Christmas and the requests finished in January.

A new Senate Foreign Relations Committee report that details the seriousness of Israel's economic plight warns that US aid alone will not cure or even significantly ease the country's structural economic problems.

US and Israeli economic experts tend to agree that the Israeli standard of living must somehow be reduced until economic growth catches up. Most also agree that inherently inflationary policies, such as the indexing of wages and the printing of money to cover each year's deficits, must be carefully reviewed.

In past months, the unity government has announced a number of belt-tightening steps, from a three-month wage-price freeze to a $1 billion budget cut.

Will these be enough to satisfy US aid givers? ''It all adds up to a serious down payment,'' a Senate source says.

Still, there are some who say that Israel's economic dilemma this time around makes for a new situation that is likely to raise more questions.

''The key thing to watch will be the administration requests early next year and what it's willing to say publicly in defense about how good the Israeli reform program is,'' one congressional source says.

''I think it's too early to say what Congress will do, but it's certainly a different ball game. (Representative) Long was an absolute rubber stamp (for Israeli aid requests),'' says David Sadd, executive director of the National Association of Arab Americans (NAAA). His organization is currently spearheading a national paid advertising campaign in the news media, aimed at stimulating more public awareness and debate about the extent of US aid to Israel.

Although Mr. Saad says that 20 out of 21 New York radio stations refused to run the NAAA message, he says he sees a rise in the amount of press commentary on aid to Israel during the last two months.

The new Senate report argues that the economic situation is as much a threat to Israeli security as a hostile neighbor. In the end, that argument alone may persuade Congress that stepped-up generosity is right in line with US self-interest, as Israeli officials consistently assert.

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