U.S. Aid Offer Disappoints Israel

Israeli officials expressed disappointment today with the $200 million in military sales credits that President Carter has agreed to add to the $3 billion aid package for Israel over the next three year. The White House announced late yesterday that the President will seek Congressional approval of that sum. Israel had requested a total of $3.4 billion in military and economic assistant for the fiscal year 1981, which begins next Oct. 1.

According to officials here, the short fall means that military expenditures will have to be reduced substantially and the government will be forced to implement even tougher economic austerity measures than those already announced.

Defense Minister Ezer Weizman returned from Washington yesterday where he had spent a week conferring with President Carter, Secretary of State Cyrus Vance, Defense Secretary Harold Brown and other top officials on the new aid package. According to reports today, top U.S. officials complained to Weizman about Israel’s West Bank settlement policy and about the lack of progress in the autonomy talks. (See related story P.3.)

The $3.4 billion Israel sought, double its present allocation, was expected to cover the loss of purchasing power of the U.S. dollar owing to inflation. Congress has already approved $2.2 billion in military aid credits over the next three years to help Israel carry out the terms of its peace treaty with Egypt, including the redeployment of its forces from Sinai to the Negev. Congress also approved $800 million in economic aid.

BASIS FOR DECISION

The amount Israel will receive for fiscal 1981 will not be known until the Administration announces its budget later this month. In announcing the additional $200 million for military, purposes, the White House said the increase “reflects our sympathy and concern for Israel’s security and well-being.”

The White House statement said “The decision was based on consideration of such factors as inflation and Israel’s balance of payments deficit and takes into account the fact that the Israeli government has instituted since last November extremely tough austerity measures designed to overcome those economic problems.”

The statement also stressed that Carter is determined to hold down federal expenditures. Weizman came in for sharp criticism in some quarters today for failing to persuade the Administration of Israel’s need for a larger aid package. The Defense Minister, who reported on his mission to Premier Menachem Begin this morning, rejected the criticism. He maintained that Israel would have received even less were it not for his efforts and challenged anybody to do better. Weizman said he was not surprised by the White House announcement, considering the inflationary pressures in the U.S.

DISAPPOINTMENT ON TWO LEVELS

Officials here were disappointed on two levels. According to some sources, the relatively small addition to the aid package, spread over three years, meant that Washington did not see “Israel as an asset.” As for the immediate impact, it was generally agreed that Israel will have to take stringent measures to cope with the “new economic reality.”

Fear was expressed that Israel would have to draw on its foreign currency reserves to finance urgent defense needs. Dr. Eliezer Sheffer, Deputy Governor of the Bank of Israel, warned that the country’s balance of payments deficit would reach 55 billion this year if the government failed to implement austerity measures. These include manpower cuts in public service, a freeze on salaries and a 4-6 percent cut in the budget. Even if those measures are adopted, the deficit would be $4 billion, he said.

Other measures that may have to be considered are a more rapid devaluation of the Pound to make exports more profitable and a reduction of imports. Some experts said the government would have to reconsider its liberal policy regarding foreign currency holdings. While Bank of Israel Governor Aman Gafni has ruled that out on grounds that the national deficit stemmed from excessive imports rather than excessive purchase of foreign currency by individuals another expert remarked, “It is hard to accept that Israel has such a tough time getting dollars whereas its citizens can buy as many dollars as they wish.”

PRACTICAL IMPLICATIONS OF AID PACKAGE

The immediate practical implications of the limited aid package include reduced production of war planes, missiles and ammunition. Army exercises will be less extensive and soldiers will use less live ammunition. Some 4000 employes will face dismissal from defense industries and civilian industries that, supply the army. The government will have to hike the price of imports and spur exports by every possible means.

Finance Minister Yigal Hurwitz said he was grateful to the U.S. for its aid to Israel but that aid will not satisfy Israel’s needs in either the military or civilian sectors. Weizman noted, in a statement to Yediof Achronot today that the U.S. Administration has decided not to increase its aid to a number of countries and, in some cases, to reduce it.

He said the Israel Embassy in Washington spared no effort to increase Israel’s share but it was his visit last week that bore fruit in the form of an additional $200 million. “This is something, though not so much,” Weizman said, adding, “One has to remember that the President is making an effort to check, inflation and it is an election year and this is all we could get.”

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