U.S. Agrees to Provide Israel $1.4 Billion in Military Aid Without Requiring Repayment

The Reagan Administration has agreed to provide Israel $1.4 billion in military aid in the next fiscal year, which begins next October 1, without requiring repayment.

According to Administration officials, this is part of a new policy to provide outright military grants to friendly countries facing financial difficulties in strategic areas of the world without requiring them to dip into scarce foreign exchange reserves. Another beneficiary of this new policy is Egypt, which will receive $1.1 billion in grants. Both grants require Congressional approval.

State Department spokesman John Hughes said the United States is “concerned about the debt burden of developing countries and the fact that United States security assistance loans may add to that burden.” He declined to discuss the specific amounts to be proposed by the Administration for the 1985 fiscal year, noting that President Reagan has not yet presented his proposed budget to Congress.

Hughes said that if the U.S. decides to make its military assistance program more “flexible”, it will be done on a worldwide basis with the degree of aid being given as a grant on a country-by-country basis.

The new policy represents a break with the decade-long approach of lending money to governments at prevailing market rates to buy American military equipment. Administration officials said. They noted that the Administration intends, instead, to give free military aid, or on highly concessionary rates to friendly countries in financial straits.

The proposal to provide more aid as grants was advocated recently by a commission which studied the aid programs, headed by Frank Carlucci, a former long-time high-ranking government official.

A State Department official said the U.S. must decide whether a friendly country deserves American military aid and that if it does, the U.S. will provide that aid in a way which will not drain the country’s financial reserves. Both U.S. and Israeli officials here said that concessionary loan rates are still being discussed but will probably be about three to four percent. The current rate is 11.5 percent, they said.

The officials pointed out that in the current 1984 fiscal year, Israel is getting a total of $1,7 billion in military aid of which half does not have to be repaid. According to informed sources, Israel already owes the U.S. more than $10 billion in military loan debts.

ISRAEL AND THE U.S. REACH COMPROMISE

The $1.4 billion in military aid proposed for Israel in 1985 is $300 million less than the 1984 amount, but officials said the new program would be more attractive since none of the money would have to be repaid.

The Reagan Administration had offered Israel $1.275 billion. Israel had asked for $1.7 billion, the equivalent of the current fiscal year’s scheduled military assistance. The officials said the Administration and Israel reached a compromise at $1.4 billion. The Administration said it understands that Israel will need more aid in the future and that the U.S. will make a good faith effort to meet those needs.

The military aid is in addition to economic aid, which is not changed by the military aid policy change. The officials said the Reagan Administration will ask Congress to appropriate $850 million in economic aid, Israel is asking for $1.2 billion.

Administration officials said that the boost in military grants for Israel will also help Egypt. Since the 1979 Egyptian-Israel peace agreement, the U.S. has tried to maintain a rough balance in aid to the two countries, although the total for Israel has always been slightly larger than that to Egypt.

During the current fiscal year, Egypt is scheduled to get $1,3 billion in military loans of which $450 million need not be repaid. The Reagan Administration plans to ask Congress to provide Egypt with a total of $1.1 billion in military grants for the 1985 fiscal year, in addition to $1 billion in economic assistance.

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