U.S. Economic Aid to Israel Could Be Cut in 1990 Budget

The $1.2 billion in economic aid Israel receives each year from the United States may be in jeopardy in the coming fiscal year, according to sources on Capitol Hill.

The $1.8 billion in military aid Israel receives appears less vulnerable at this point. The State Department and the Pentagon have agreed to recommend that Israel receive that amount in the 1990 fiscal year, U.S. and Israeli sources said.

But Capitol Hill sources noted that both components of Israel’s $3 billion annual aid package, all of which is disbursed in the form of grants rather than loans, could be cut at any step in the annual budgeting cycle.

President Reagan is due to submit his 1990 budget to Congress on Jan. 9. George Bush may elect to submit his own budget after he is sworn in as president on Jan. 20. Congress has until Oct. 1, when the fiscal year begins, to act on the White House budget by appropriating funds.

In computing Israel’s economic aid for 1990, U.S. officials, including Deputy Secretary of State John Whitehead, are suggesting that Israel’s savings under the December 1987 foreign debtfinancing law be taken into account, sources said.

Under that law, Israel is expected to save an estimated $2 billion over 20 years by converting high-interest government loans into lower interest private loans. It saved about $100 million over the past year, an Israeli source said.

Israel currently owes $10 billion to the United States from loans received during various Arab-Israeli wars and in annual aid packages before they were converted to grants in 1984.

MOST FAVORABLE PACKAGE EVER

In recent years, Israel’s annual debt payments to the United States have generally approached the level of economic aid it received from the United States.

In fiscal year 1990, however, Israel would pay less in debt obligations than it would receive in economic aid, if current assistant levels were to continue, according to a Capitol Hill source.

The $3 billion that Israel received in fiscal years 1988 and 1989 were its most favorable packages ever, constituting close to 10 percent of Israel’s national budget.

Increases are considered unattainable, since under the Gramm-Rudman-Hollings deficit reduction law, Congress and the executive branch must cut $35 billion from the anticipated 1990 U.S. budget deficit of $135 billion.

It is not clear whether President-elect Bush will submit his own budget. Like Reagan, Bush does not support tax increases, although there has been talk of “revenue enhancement” measures.

The agreement on military aid was reached in the U.S.-Israeli Joint Security Assistance Planning Group. In a concurring agreement, Israeli Defense Minister Yitzhak Rabin agreed not to seek more than $1.8 billion in military aid for 1990, sources said.

But U.S. and Israeli officials said the Reagan administration is considering a 2 percent cut in military aid for the current 1989 fiscal year, which could cost Israel $36 million.

The money would be reappropriated to countries whose military aid was cut dramatically in recent years, including some that allow U.S. military bases on their territory.

The administration would not need congressional approval to make such a cut.

POSSIBLE CUT FOR 1989

Carlucci informed Rabin in Israel last month about the possible cut. The defense minister reportedly replied that he “would not fight it.”

Three of the four key members of the congressional appropriations subcommittees with jurisdiction over foreign aid reportedly are urging the administration to scrap the idea. They are Sens. Daniel Inouye (D-Hawaii) and Robert Kasten (R-Wis.), and Rep. David Obey (D-Wis.).

“If it is blocked, it will be because of them,” the source said. “If it goes through, it will be because Rabin gave (the administration) a green light.”

Yosef Gal, the Israel Embassy spokesman, said he did not know what Rabin had told Carlucci, but added that “we believe and hope” that the 2 percent cut will not take place.

As for fiscal year 1990, Gal said he was “pretty confident” that the current level of U.S. aid will be maintained.

Morris Amitay, a pro-Israel lobbyist and former executive director of the American Israel Public Affairs Committee, said there is “definite cause” to be concerned that foreign aid to Israel will be reduced in the coming fiscal year.

In the most recent major foreign aid battle, for fiscal year 1988, Congress cut the administration’s total foreign aid request from $19.5 billion to $16.2 billion, although it maintained the $3 billion in aid to Israel.

Pro-Israel activists were happier when the budget summit of Nov. 1, 1987, restored the administration’s international affairs budget to $18.1 billion, which meant smaller cuts for other foreign aid recipients and avoided greater resentment at Israel.

That agreement established the foreign aid levels for both fiscal years 1988 and 1989, and helped Israel avoid a major budget battle this past year.

WILL BAKER BE AS PRO-ISRAEL?

Foreign aid is considered one of the most vulnerable of all accounts in the U.S. budget. Despite the widespread support in Congress for aid for Israel, most lawmakers would likely not face repercussions from voters for cutting foreign aid in favor of limiting cuts in health, education and welfare services.

Because Israel and Egypt together receive more than half of the $10 billion U.S. foreign aid budget, supporters of Israel have lobbied hard to keep the administration’s international affairs budget intact.

As one Capitol Hill source put it, “There is one constituency to pass foreign aid — the pro-Israel community.” Without it, “you could not get a dollar for Egypt.”

Egypt is to receive $2.3 billion from the United States this fiscal year. Under the Camp David accords, Egypt must get two-thirds of the foreign aid Israel receives from the United States.

It remains to be seen if Secretary of State-designate James Baker III will be as pro-Israel as Shultz has been.

In November 1987, Baker, who was then treasury secretary, expressed concern about the Israeli debt-refinancing plan, saying it could ultimately cost the United States “tens of billions of dollars.”