Sizing up $3 billion in US aid

Israel is America's biggest aid beneficiary, but an ongoing flap overplanes shows that not everything is rosy.

When El Al Israel Airlines decided on Oct. 28 to purchase a handful of planes from both Seattle-based Boeing and its European rival, Airbus, Washington grumbled.

The Clinton administration had lobbied Israel heavily in a protracted bidding war between Boeing and Airbus. Several of President Clinton's Cabinet secretaries raised the issue with Israeli counterparts. Mr. Clinton himself made a plea to Prime Minister Ehud Barak to do his utmost to ensure that El Al - which is 99 percent state owned - buy American.

"There were calls at all levels. All levels," says one US official. The subtext was clear: Israel, as the recipient of more than $3 billion a year in US aid, enjoys a bigger portion of the foreign-aid budget than any other country. As such, America has been Israel's largest donor for the past two decades.

Though the commercial planes do not fall into the category of defense expenditures - the $1.86 billion-portion of the aid which Israel must spend primarily on US products - American officials expect Israel to give preference to its superpower patron and peace broker whenever possible.

The El Al decision couldn't have come at a worse time. Clinton was in the thick of fighting Congress for approval of another $1.9 billion - $1.2 billion for Israel and $700,000 for the Palestinians - as a reward for implementing the Wye River accord.

Moreover, last week Pentagon officials said they had serious reservations about Israel's plans to sell a sophisticated radar system to China. The officials said they were concerned that secret US military technology could be transferred to China in the course of the sale, but then backpedaled on that, saying late last week that Israeli officials had allayed those concerns. But doubts remain over whether the radar system could enhance China's ability to threaten Taiwan, a US ally, and whether Israel's increasing interest in cultivating China as a weapons client could contravene US interests.

On top of this, foreign aid has become an increasingly favorite target on Capitol Hill. It all means that US policymakers and the allies they try to sway with financial incentives may have to begin rethinking the foreign aid game.

That is particularly so at a time when the Middle East stands at the dawn of a new era of peacemaking that may find Israel reaching a "final status" deal with the Palestinians and mending fences with Syria - and by default, Lebanon - all within the next year or two. But with this great optimism for what could mean a virtual end to 50 years of Israeli-Arab conflict come major price tags for making the necessary concessions.

As political observers take note of the changing climate in Washington, they say Israel and the surrounding Middle East players will have to start lowering expectations, or hope the United States will continue to enlist other economic powers to help foot the bill.

"One thing that's needed is a reality check among the parties in the Middle East that the big inducements la Camp David are not going to happen. The people who think so are fooling themselves," says Scott Lasensky, a research fellow at the Brookings Institution in Washington, referring to the 1979 peace deal the US forged between Israel and Egypt.

This time around, according to unconfirmed reports cited by several analysts interviewed, Mr. Barak is planning to ask for as much as $20 billion in return for a peace deal with Syria. Such an accord will probably require Israel to give up much or almost all of the Golan Heights it seized in the 1967 Middle East war - a concession Israel wants to be compensated for by security reinforcements.

"Now they're dropping hints of $10 [billion] or $20 billion for a Syrian deal, and they're missing the boat. There's just no political will for that in America," adds Mr. Lasensky. "They're lucky that they're maintaining the base line."

But the Israeli military establishment says it hardly is. Twenty years of inflation have made American products increasingly more expensive, but the amount of yearly aid has remained level since the mid-1980s. Defense Ministry officials say that the $1.86 billion earmarked for military aid has about half the purchasing power it did when the aid was first instituted two decades ago.

"We're talking about something that's disappearing," says Ira Sharkansky, an expert in Israel's political economy at the Hebrew University of Jerusalem. "The purchasing value of this aid is less than half of what it used to be, given the past 15 years of American inflation."

But that drop also points to growth in the Israeli economy. The Israel of the 1990s, with its signs of increasing affluence and a thriving high-tech sector, is a clear contrast from the Israel of the 1970s, with its hyperinflation and instability. With living standards on a par with some European countries, Israel has come under pressure to reduce its civilian-aid package.

When then-Prime Minister Benjamin Netanyahu told a joint session of Congress in 1996 that he would do just that, he received a standing ovation. An agreement has been worked out whereby Israel's civilian aid is being cut by 10 percent each year, with half of that being converted to military aid. (See fact box, right.)

The US commitment to supporting Israel - and particularly in ensuring that it maintains a qualitative military edge over its Arab neighbors - has always been based on a school of thought that considers the Jewish state a key strategic ally in the primarily Islamic Middle East. Spanning back to President Harry Truman, Israel has been viewed as a small, endangered light for democracy and Western values in an unstable region.

Then, as the cold war with the Soviet Union developed into a running tally of rival client states, Israel was seen as an important buffer to countries such as Syria, then armed and supported by the USSR.

The unraveling of the cold war some 10 years ago raised questions as to what extent that strategic consideration might be pass. But a history of what has been described by both sides as a "special relationship" between the two countries, which includes a strong pro-Israel lobby in the US and bipartisan support for Israel in Congress, has kept the level of aid to Israel the same.

To be sure, US aid to Israel has been a source of Arab resentment and accusations of favoritism, especially since the two Arab countries that have signed formal treaties with Israel - Egypt and Jordan - receive significantly less aid. And in addition to those in the US who question the size of Washington's financial commitments overseas, even in Israel there are arguments against long-term reliance on US aid. Among them are free-market proponents who argue that the money puffs up the state-run portion of Israel's economy at the expense of its private sector.

Still, with major changes on the horizon in the Middle East, some costs may be unavoidable. Israelis who may be forced to leave homes in the Golan or settlements in the West Bank and Gaza Strip will likely be compensated, as may some Palestinian refugees forced to flee in the 1948 and 1967 Middle East wars. Old military installations will have to be torn down and new ones put up.

The most likely solution may be increased reliance on other countries to help fund American initiatives, such as has been the case with calling donor conferences to support the fledgling Palestinian Authority and in addressing world crises from Kosovo to the Koreas.

"Domestically, there's no consensus here to support these unilateral American aid packages," says Lasensky, the Brookings fellow. "Some of that is OK, because we're getting the multiconsortium countries to fund our diplomacy."

(c) Copyright 1999. The Christian Science Publishing Society

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