Provision Exempting Israel from New Aid Rules is Killed

Rep. David Obey (D-Wis.), chairman of the House Appropriations Subcommittee on Foreign Operations, recently killed a Senate attempt to exempt Israel and members of NATO from legislation requiring stricter accounting of U.S. economic aid, well placed Capitol Hill sources said this week.

The plan to exempt Israel from the regulations was backed by Sens. Daniel Inouye (D-Hawaii) and Robert Kasten (R-Wis.), the chairman and ranking Republican of the Senate counterpart to Obey’s subcommittee.

The exemption plan was contained in the Senate version of the 1988 continuing resolution, but was later dropped from the final version of the resolution, which was adopted shortly before Congress adjourned in December.

A Capitol Hill source attributed the exemption’s demise to Obey’s opposition in negotiations between House and Senate conferees to iron out differences in their versions of the continuing resolution.

“Obey went ballistic,” said that source, who also predicted the issue “will be revisited.”

Obey’s office did not return phone calls Wednesday and Thursday.

Obey is a key member of Congress on legislation affecting Israel and is regarded as an independent thinker, especially on budget issues.

As the Foreign Operations Subcommittee chairman, he opposed a recent plan to refinance the debts of foreign aid recipients, which became law in December, and could save Israel $2 billion over 20 years.

The legislation requiring new accounting of U.S. aid took effect last February. It applies to all foreign aid recipients, although Israel was not affected until October 1987, when it received all of its $1.2 billion in economic assistance for the 1988 fiscal year.

The regulations require countries receiving aid to provide the State Department with a list of “separate accounts” from which they draw the money.

Israel has so far refused to do so, arguing the regulations would cause it an accounting nightmare, an Israeli Embassy official said.

In the interim, the money has been frozen in the Central Bank of Israel, earning the same rate of interest as U.S. Treasury Bonds, the Israeli official said.

He explained that Israel currently monitors the $1.2 billion by using customs records and that it uses the money entirely to buy U.S. exports. He termed the new legislation “virtually impossible” for Israel to implement.

A congressional source said the “separate accounts” law is aimed at past aid abuses by El Salvador and the Philippines.

The source said that the accounts plan would set Israel back to the 1970s, when there was an elaborate U.S. and Israeli bureaucracy to closely monitor U.S. aid.

He said that network was largely replaced by a system of “spot checks,” and noted that a General Accounting Office report a few years ago found that Israel was using the foreign aid properly.

The Israeli official complained that the new law requires Israel to set up a new system to record that “this specific dollar can be used for that specific transaction.”

In other words, an Israeli importer would have to get “a specific dollar from the Bank of Israel (to make a specific purchase),” the source said.

He said Israel is consulting with the State Department, and the issue could be raised in February, when a joint U.S.-Israeli economic working group is scheduled to hold its regular semiannual talks.