‘Unique Situation’ : Israel: An Economic Ward of U.S.

<i> Times International Economics Correspondent</i>

Everyone knows the United States helps Israel. But few Americans know exactly how much. By any meaningful measure, the Jewish state has become an economic ward of the United States, and leaders in both countries are concerned.

When this year ends, the United States will have given Israel as much aid in inflation-adjusted dollars as all of Western Europe received under the Marshall Plan.

Yet Israel’s population of 4.3 million is barely 1 1/2% of postwar Western Europe’s, and half that of metropolitan Los Angeles today. Moreover, the Marshall Plan was a self-limiting process, designed to end when the European economy recovered from the devastation inflicted by World War II; the commitment to Israel is open-ended.


25% of All Aid

For the last 11 years, in fact, Israel has received 25% of all the foreign aid appropriated by Congress, making Jerusalem far and away the world’s leading recipient of American assistance.

No parallel exists in the history of international capital flow.

“It’s a unique situation, there’s no doubt about that,” said former President Jimmy Carter at his home in Plains, Ga., after a recent visit to Israel. “I don’t think it is wholesome for either country . . . but it has become a way of life.”

Still, Carter sees American financial support of Israel as something the United States can--and should--afford: “Israel is a small country with democratic principles and is beleaguered by an overwhelming number of Arabs who surround it,” he said.

Israeli leaders dislike dependency, too: “Nobody in Israel ever wanted to become dependent on a foreign power,” said Amos Rubin, Prime Minister Yitzhak Shamir’s economics adviser during a recent interview here, “and, now that we are, nobody has an acceptable way out.”

Private Aid Also

And while official American aid--a total of $58.8 billion in 1987 dollars--dominates the picture, the economic connection between the two countries involves far more than that.

For every three dollars Israel receives from the U.S. government, it gets an additional dollar in private American contributions, channeled through such organizations as United Jewish Appeal and Hadassah, as well as through personal purchases of Israel bonds at concessionary interest rates.


This means that every year the United States sends Israel at least $4 billion--$1.8 billion for military spending, $1.2 billion in economic aid and roughly $1 billion from private pockets. That amounts to nearly $1,000 a year for each Israeli, about 20% of the country’s average per capita income.

Even those numbers understate the picture, for the Israeli and American economies have intertwined on a fundamental level.

With the blessing of the White House and Congress, Israel’s defense industry has intermeshed with the U.S. military-industrial complex, serving not only as major customer, supplier and consultant, but also as a weapons systems researcher and developer. Recently, it was declared eligible to bid for classified American defense contracts on the same basis as a “major non-NATO ally.”

As the result of an agreement signed last year by Defense Secretary Caspar W. Weinberger and Israeli Defense Minister Yitzhak Rabin, the Israelis have even received contracts let as part of President Reagan’s Strategic Defense Initiative.

“We are trying to integrate into the American military-industrial community,” said Nehemiah Hassid, corporate vice president for finance of Israel Aircraft Industries. “We feel this agreement paves the way toward a supportive role in the complex.”

Two years ago, Israel won the only free trade area agreement that the United States ever has signed. Though most Israeli exports already enter America duty-free, the pact calls for abolition of all tariffs between the two countries. As such, it constitutes a kind of insurance policy, shielding Jerusalem against any future protectionist trade measures enacted by Congress.


The economic relationship between the United States and Israel also includes these unusual attributes:

-- Since 1985, all U.S. aid has been given as grants, not as repayable loans.

-- Economic grants are paid in cash for “general budgetary support” instead of being earmarked for specific development projects--the usual procedure. Thus, Israel may spend them in any way it chooses, even at cross purposes with American policy. (At present, Israel uses them mainly to pay $1 billion a year on previous loans).

-- Military grants are paid on a “cash flow” basis, meaning they may be committed by Israel before they are appropriated. In effect, this obliges Congress to fulfill long-term contracts Jerusalem signs with American suppliers.

-- Israel is exempted from buy-American rules usually attached to military grants. It is authorized to spend up to $300 million a year on purchases from its own defense industry and on internal research and development projects.

-- Grants are paid in a lump sum at the start of the fiscal year rather than in the usual four quarterly disbursements. On paper, this gives Israel a bonus--estimated at more than $50 million--in interest costs charged against the U.S. deficit.

-- Washington guarantees to supply Israel with all its oil at world market prices in the event Israeli imports are ever cut off (a 1979 agreement to induce Israel to abide by the Camp David Accords and return the Sinai Peninsula, with its major oil field, to Egypt).


Former President Carter describes this unprecedented conglomeration of benefits as “an accumulation of incremental changes that have taken place during each budget cycle.”

“Very astute people have assessed the potential for improvement (in the aid package). There’s been a well-organized effort to concentrate on those two or three apparently minor elements of progress, and then over a period of eight, 10, 12 or 15 years, the aid has become uniquely attractive to Israel, with minimum interest charges, maximum flexibility . . . those kinds of things.”

‘A Safe Base’

Others in the American government, particularly in the Pentagon, see substantial benefits to the United States in the current relationship: “However much it costs, it is worth it from a strategic viewpoint,” a military official who asked not to be named said. “Israel provides a place in the Middle East where we can fly in our planes on overnight notice if we have to and have a safe base to operate from. That is a priceless asset.”

Last year, in fact, about 1,200 American military personnel visited their opposite numbers in Israel in a program that tries to foster individual camaraderie as well as a rapport at the highest levels.

“Getting to know those people, sharing coffee and meals and hearing about their families, that is the key to our working well together,” a U.S. Army officer said. “We know them well enough to kid them, and they know us that well, and that makes for a good relationship.”

A Strong Supporter

Such sentiments often are echoed in the legislative branch, especially by California’s senior senator, Democrat Alan Cranston, the current majority whip and one of Israel’s strongest supporters in the upper chamber.


“Israel is a stable democracy and a reliable ally in a troubled region of the world,” Cranston said during a recent interview in Washington. “It shares values Americans hold, natural ties exist between us and it deserves our whole-hearted support.”

However, a number of Americans experienced in foreign affairs argue that a more “even-handed” approach in the Middle East would allow the United States to improve relations with moderate Arab states, while at the same time maintaining strong ties with Israel.

Among them are two former chairmen of the Senate Foreign Relations Committee, J. William Fulbright (D-Ark.) and Charles H. Percy (R-Ill.), both defeated at the polls, in part, because their views alienated Israel’s U.S. support groups.

Problems for Partners

Fulbright, now a Washington lawyer, will no longer discuss Israel on the record, because he believes that his views may cause problems for his law partners.

Former Republican Congressman Paul N. (Pete) McCloskey of California, another lawmaker who ran afoul of Israel’s domestic supporters, is less reticent: “If you use the term evenhanded in connection with American policy in the Middle East, let alone suggest that talks with the PLO (the Palestine Liberation Organization) might contribute to the peace process, you get into deep trouble with a lot of Jewish voters,” he said not long ago at his home in the San Francisco Bay Area, where he now practices law.

“To supporters of Israel,” said the former Marine who protested against the Vietnam War and challenged Richard M. Nixon in the 1972 presidential primary elections, “the term evenhanded equates as anti-Semitic, and woe be to any American politician at election time who takes that approach.”


Israel Lobby Angered

Despite a strong record of support for Israel, McCloskey antagonized the pro-Israel lobby when he proposed reducing Israeli aid by the amounts Jerusalem was spending to build Jewish settlements in the occupied West Bank--a policy opposed by the U.S. government as illegal under international law.

McCloskey then lost in a bid for Republican nomination to the Senate.

(With ironic humor, in his last speech in the House of Representatives, McCloskey quoted these words from George Washington’s Farewell Address: “A passionate attachment of one nation for another produces a variety of evils.”)

Obviously, the Fulbrights, Percys and McCloskeys do not prevail on Capitol Hill. Nor are their views publicly shared in the State Department, where Secretary George P. Shultz firmly supports Israel.

However, Dean Rusk, former secretary of state under Presidents John F. Kennedy and Lyndon B. Johnson, expresses deep concern over the extent of U.S. economic involvement with Israel and over the degree of political influence Israel seems to exert within the United States.

‘Unwholesome Relationship’

“It is a very unwholesome relationship that we have gradually moved into,” he said during a recent interview at his office in the Rusk Center at the University of Georgia. “Israel looks upon the United States as bearing the residual responsibility for (solving) Israel’s financial problems.”

Too often, Rusk feels, the United States, through association with Israel, becomes compromised by Israeli actions that Washington actually disapproves, such as the invasion of Lebanon, the forbidden use of American-supplied weapons in the bombing of Beirut and the building of Jewish settlements on the occupied West Bank.


‘Not an Ally’

“People sometimes refer to Israel as an ally,” Rusk continued. “Israel is not an ally. One becomes an ally through a treaty of alliance, and allies take special pains to try to coordinate their policies as much as possible. I don’t think the Israelis have ever wanted that kind of obligation. They prefer to take their chances on going their own way and expecting Jewish support in this country to force the United States to go along. So there have been some very disagreeable situations.”

Cranston takes forceful exception to that view: “The Israelis may not be allies in the technical sense--that is, through a treaty of alliance--but they are allies in every other sense,” he argued. “They are the most powerful military force in the region, it is of vital importance for our country to keep them that way, and I would say our relationship with Israel is wholesome.”

Over the years, opinion polls have shown consistently that the American public--Jews and non-Jews alike--strongly agrees with Cranston and supports Israel.

Effective Lobbying Group

Capitalizing on that support, the American Israel Public Affairs Committee, widely regarded as the most effective foreign affairs lobbying group in Washington, has pressed Israel’s case with Congress with phenomenal success in two ways: in orchestrating support among legislators for resolutions that help the Jewish state and in mobilizing through its constituent groups opposition at the polls to politicians like Fulbright, Percy and McCloskey who don’t go along.

According to Thomas A. Dine, AIPAC’s executive director, his organization’s task simply is to present the right information at the right time in the right places.

“And we are passionate,” he said. “If other persons were as committed to the political process as we are, we would have a less apathetic public.”


The American Israel committee watches Congress like a hawk. Not a hearing is held on subjects of interest to Israel that does not have an AIPAC staff member in attendance, listening to each lawmaker’s words, assessing each twist and turn in the legislative process.

More Subtle, Complicated

With help from AIPAC’s formidable influence, Israel has a U.S. assistance package so attractive that a widely held view is that Israel all but writes its own aid program. But the process is more subtle and complicated than that.

“It is true that Israel can get anything in the way of aid it wants from Congress, but they know they have to live with the Administration from day to day, and they don’t want to antagonize us,” a senior State Department official said.

Twice a year, top Israeli and U.S. economic officials meet to discuss Jerusalem’s aid needs for the following year. Basically, the Israelis present a case to their American counterparts, the merits are discussed and a compromise is agreed and submitted as a proposal to Congress--where it breezes through.

“Sometimes we have found where we could improve (the aid bill), to make it closer both to meeting Israel’s legitimate needs and serving our own interests,” said Rep. Stephen J. Solarz (D-N.Y.) of the House Foreign Affairs Committee, a strong backer of Israel.

Some Policy Failures

“But Israel certainly doesn’t get all it wants out of Congress--it couldn’t stop the sale of AWACS (surveillance planes) and missiles to Saudi Arabia and Jordan.”


In President Reagan, the Israelis have the firmest friend they ever have had in an unbroken succession of U.S. Presidents who supported Israel. Such favor from the White House permeates negotiations on lower levels.

The cordiality of the bilateral meetings to discuss aid was stressed here recently by Emanual Sharon, director general of Israel’s Finance Ministry, who leads the Israeli delegation that meets with the undersecretary of state for economic affairs, W. Allen Wallis, each June in Jerusalem and each November in Washington.

“The sessions are more like a university seminar,” Sharon said.

“We work as professional and independent economists toward a consensus. Basically, we are professors working to determine the difference between Israel’s requirements and Israel’s ability to meet those requirements. From that we find the size of the gap that needs to be filled with U.S. aid.”

Like a Rich Uncle

Some observers believe that Sharon is describing the relationship between a rich uncle and his favorite nephew rather than the one that usually prevails between sovereign nations. And, like many another such dependency, this one has its tensions.

Former President Carter, for example, said he has “been surprised and angered by some leaders in the present (Israeli) government who speak with a degree of arrogance and even condemnation of the United States for ‘inadequate’ support, for pursuing ‘unattractive’ peace efforts, for general criticisms of Israel’s policies relating to the West Bank, Lebanon or Gaza.”

“I think that the more certain the prospect of economic aid is--and it is quite certain--the lesser inclination there is on the part of many Israelis to take it other than the expected obligation by the United States to continue it or even to extend the present level of aid.”