NCPA - National Center for Policy Analysis

Israel's "Gift" To The U.S.

July 17, 1997

Israel is the largest foreign recipient of U.S. economic and military aid -- $3 billion a year. Recently leaders in both countries have begun to recognize that the aid debilitates Israel's economy, and some officials there have hinted to reporters that a lower level of aid would be acceptable.

But analysts say Israel's supporters in the U.S., chiefly the American Israel Public Affairs Committee, are dead set against any reduction. Nevertheless, aid is being reduced by a tiny amount this year, with promises all around that it will be a one-time thing.

  • President Clinton wanted to reward Jordan for making peace with Israel in 1994, but without increasing the foreign aid budget.
  • So Congress plans to take $50 million each from Israel and Egypt -- the second largest recipient of U.S. subsidies -- and hand the total over to Jordan.
  • The mechanism that was agreed upon in negotiations guarantees that the cut will not establish any precedent and Israel reportedly views the $50 million as a "gift" to the U.S.
  • To establish the gift fiction, the U.S. will send Israel its entire $1.2 billion in economic aid this year -- with Israel then sending the $50 million back, and the U.S. passing it along to Jordan.

Foreign subsidies have become a centerpiece of Israel's economy, experts contend.

  • With an annual government budget of $55 billion, Israel receives almost $10 billion from friends abroad.
  • America's $3 billion economic and military aid handout constitutes more than 3 percent of the country's gross domestic product.
  • Roughly another $7 billion arrives in the form of U.S. housing loan guarantees, assistance from other nations and from Jews around the world.
  • Altogether nearly one-seventh of the country's GDP comes from international donations.

Economists have dubbed the system "socialism on welfare" -- and state that it has been ruinous for the country. The Jerusalem-based Institute for Strategic and Political Studies concluded in a report last year that the aid "prevents reform, causes inflation, fosters waste" and "ruins our competitiveness and efficiency."

But the leader of the opposition Labor Party, Ehud Barak, has been quoted as saying, "we need financial support and would prefer to receive it for quite a long time."

Source: E. V. Kontorovich (New York Post), "Israel Needs Help to Kick the Subsidy Habit," Wall Street Journal, July 17, 1997.


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