The Reagan Administration proposed today that the U.S. provide $2.185 billion in assistance to Israel in the new fis-
cal year starting next Oct. I but appeared to rule out foregiveness of any part of Israel’s $17.4 billion of indebtedness to the U.S.
The levels of the proposed aid for the coming fiscal year are the same as that being provided this year, $1.4 billion in military assistance and $785 million in economic aid. The current $1.4 billion was increased to that level by Congress last year when it added $200 million to the Carter Administration’s proposal.
ELEMENTS IN THE AID PACKAGE
Two-thirds of the $785 million in economic aid will be a grant. The remaining one-third will be at interest of 2 percent for 10 years and 3 percent for the next 20 years when the loans mature. Of the military aid, $900 million will be a 10-year loan, followed by a 20-year period of repayment of the principal at interest equal to the cost of funds to the U.S. Treasury at the time of disbursement. At present, the Treasury borrows money at approximately 15 percent.
“We are proposing foregiveness of Israel’s principal and interest obligations for the remaining $500 million, “according to Joseph Wheeler, Deputy Administrator of the Agency for International Development (AID), who was one of the Reagan Administration’s top officials testifying on aid to Israel before the Subcommittee on Europe and the Middle East of the House Foreign Affairs Committee.
Besides these sums, Wheeler observed, Israel will get about $600 million from the special deployment assistance package approved three years ago with relation to Israel’s withdrawal from Sinai. Therefore, in the new fiscal year, Israel will get the amount of $2.8 billion. But Israel will return principal and interest of approximately $700 million to the U.S. so the net aid will be about $2.1 billion.
Wheeler told Rep. Milicent Fenwick (R. N.J.) that all of the military aid will be spent in the U.S. and that Israel’s civilian imports from the U.S. are about $1.5 billion a year which is well above the economic aid. “Conceptually, all of the U.S. assistance to Israel is spent in the U.S.,” he testified.
Wheeler replied “no” to Rep. Dean Hamilton (D. Ind.), the subcommittee chairman, when asked if the Reagan Administration was giving “any consideration” to a cancellation of Israel’s outstanding loans and if the U.S. is giving “any help” on Israel’s exports.
Israel has been seeking co-production opportunities on U.S. military equipment and other manufactures to improve its exports and cut its defense costs. Wheeler’s prepared statement said that in Israel’s budget, 60 percent goes for defense and public debt servicing.
ISRAEL’S ECONOMIC SITUATION ASSESSED
He testified that Israel achieved an overall balance of payments surplus in 1980 and was able to increase its foreign exchange holdings by about $200 million. But, “despite these successes, Israel’s basic problems remain unresolved,” he said. These include inflation, with the consumer price index up to 133 percent in 1980 compared to III percent in 1979. Israel also seeks “to restore equilibrium in the balance of payments to avoid substantial increases in unemployment,” Wheeler said.
He told the subcommittee that Israel has scored “a major achievement” economically. While noting the billion dollar increase in its oil import bill, resulting largely from the return of the Alma oilfields in Sinai to Egypt, he said that “with rapid, but feasible, increases in exports of goods and services, servicing external debt will remain manageable.” Israel owes $7 billion to the U.S. government and more than $10 billion to commercial banks and other non-governmental sources, Wheeler said.
To some observers, the impression left by the testimony of Administration officials appeared to be that Israel can get along without cancellation of its loans by the U.S. Wheeler said Israel’s export’s increased by $2 billion in 1980. This “was made possible in part by reduced growth in the domestic economy and the possibilities of earning larger profits by selling overseas rather than at home,” he said.
When Rep. L.H. Fountain (D. NC) noted the U.S. government debt of “a trillion dollars” and asked if commercial banks would be willing to service Israel, Wheeler responded that “There’s no hesitation in the banking community to lend to Israel.” He said Israel’s debt is “within international norms” and observed that “Israel has such an excellent record of paying its debts.”
ISSUES OF THE SETTLEMENTS AND JERUSALEM
Morris Draper, Deputy Assistant Secretary of State for Middle East Affairs, drew laughter in response to Rep. Bob Shamansky (D. Ohio) who asked for an explicit statement on President Reagan’s view that Israeli settlements in the occupied Arab territories are not illegal, while President Carter held they were illegal. “There are differences of opinion within the Administration but I am not about to say President Reagan made a mistake,” Draper replied.
Draper remarked, however, that “the settlement activity constitutes a problem and a difficulty for the peace process.” Pursuing that subject, Rep. Stephen Solarz (D. NY) asked Draper if there were differences between the Reagan and Carter Administration on the Camp David agreement. He replied, “none.”
Asked if there has been a change on the Jerusalem issue, Draper observed that “there could be differences in nuance” but he would not elaborate. He repeated his view on the “problems” raised by the settlements. With respect to the Palestine Liberation Organization, he said the U.S. would not negotiate with it until it recognizes Israel and accepts United National Security Council Resolution 242.
Solarz summed up Draper’s testimony by saying, “At least, I can conclude that on these four issues–Camp David, Jerusalem, the settlements and the PLO–there is no difference between the current and previous administrations.”
Rep. Jonathan Bingham (D. NY) said he was disturbed by testimony that Israel is a welfare state which, he indicated, connotes a poor image of Israel in the present political climate. Wheeler replied that Israel’s living standard “on an average” compares with Greece, Italy and Spain but that “probably there is greater equity in Israel in that the poorer people are better off than in those three countries.”
Wheeler said the Reagan Administration is proposing $6 million for four U.S. voluntary agencies on the West Bank and Gaza Strip and $4 million to promote cooperation between Israel and its Arab neighbors, “especially Egypt,” in “a number of possible fields.” He said he expected almost $5 million to be obligated in the current year on such projects. He spoke of Egyptians, Israelis and American institutions performing cooperative research in aquaculture, prevention of shore erosion and the impact of the Aswan Dam on the Eastern Mediterranean.
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