Opinion Editorials, October 2003, www.aljazeerah.info
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Supporting Israel costs US dearly
By Hussain Khan
Al-Jazeerah, 10/28/03*
Among all the countries which are receiving US foreign aid, Israel is the largest recipient. For the last several years, It has been getting three billion dollars a year. Adjusting the official aid to 2001 dollars in purchasing power, Israel has received a direct foreign aid of $240 billion since 1973.
But there are a lot of hidden costs, which have been estimated by Thomas Stauffer, a consulting economist in Washington. He has been doing such analyses of the Middle East scene for decades. This has made him quite unpopular with the Israel lobby in the US.
According to his assessment until last year, since 1973, Israel has cost the United States about $1.6 trillion. It is more than $5,700 per person, if divided by the current six million population of Israel. The direct aid of $240 billion dollar balloons to 1.6 trillion dollar owing to some hidden and other costs that have ensued as a result of the constant US support to Israel.
Among these hidden costs, Stauffer includes, for instance, is the amount of aid given to Egypt and Jordan in return for signing peace treaties with Israel to the tune of $117 billion and $22 billion respectively. "Consequently, politically, if not administratively, those outlays are part of the total package of support for Israel," argues Stauffer.
Mr Stauffer has estimated the total cost to the US adds up to more than twice the cost of the Vietnam war. But the demands are always on the increase. Last year, Israeli officials made a request for $4 billion in additional military aid to defray the rising costs of dealing with the intifada and suicide bombings. They also asked for more than $10 billion in loan guarantees to help the country's recession-bound economy.
Stauffer is of the opinion that Israel would not be able to repay these loans covered by the US guarantees. He has formed this opinion in view of Israel's current deep economic troubles. He thinks that the US would end up paying both principal and interest at the end of 10 years.
Moreover, the full bill for supporting Israel is not clearly known to many, as some costs, if not hidden, are little known. One huge cost is that of the higher price of oil, which the US had to pay after Israel-Arab wars, in addition to other economic damage the US had to suffer because of them. Arab nations, in 1973, tried to take back the territories Israel had occupied after the 1967 war.
At that time, the US came to the rescue of Israel. President Nixon gave it more US arms. That led to the Arab oil embargo against the US. That shortfall in oil deliveries resulted in a deep recession in the US. According to Stauffer's calculations, the US lost $420 billion (in 2001 dollars) of the output as a result, and a boost in oil prices cost another $450 billion. The US had to set up a Strategic Petroleum Reserve after that. For this purpose an additional $134 billion had to be spent by the US.
Moreover, the US Jewish charities and organizations have remitted grants or bought Israeli bonds worth $50 billion to $60 billion. Though private in origin, the money is "a net drain" on the United States economy, says Stauffer. Israel buys discounted, serviceable "excess" US military equipment. Stauffer says these discounts amount to "several billion dollars" over recent years. Israel uses roughly 40 per cent of its $1.8 billion per year in military aid, ostensibly earmarked for purchase of US weapons, to buy Israeli-made hardware.
It also has won the right to require the defence department or the US defence contractors to buy Israeli-made equipment or sub-systems, paying 50 to 60 cents on every defence dollar the US gives to Israel. US defence contractors often resent the Israel's requirements and the extra competition subsidized by US taxpayers.
US help, financial and technical, has enabled Israel to become a major weapons supplier. Weapons make up almost half of Israel's manufactured exports. Recently Israel has made billions of dollars of contracts with India to export sophisticated military hardware. Israel has developed such a capacity with the US help over the years.
Stauffer has further estimated that the US policy and trade sanctions reduce US exports to the Middle East by about $5 billion a year, costing 70,000 or so American jobs. The US has been so benevolent to Israel that it has been exempted from the requirement to use its US aid to buy American goods, as is usual in foreign aid. This exemption costs additional 125,000 jobs. Moreover, Israel has also blocked F-15 fighter aircraft to Saudi Arabia in the mid-1980s. That has cost $40 billion over 10 years.
Stauffer is not alone in this research. He has got the assistance of a number of mostly retired military or diplomatic officials. These officials do not want their names to be disclosed. They fear that they will be labelled anti-Semitic, if they criticize America's policies toward Israel.
Despite all this massive aid from the US over the years, Israel is still suffering from recession. The business activity remained sluggish and the long awaited recovery remained elusive. Haim Israel, head of research at Nessuah Zannex, predicted that government budget discussions will continue throughout this month.
To make up for the shortfall in the revenue, the government will have to take a few unpopular measures. Pensioners who opt for early retirement will be taxed, water prices, and bus and train tariffs will all be raised. There will be an across-the-board cut of 15 per cent in all ministry activities. The number of civil servants will be reduced. Government subsidies to all sectors will be cut by 15 per cent and from 2003 to 2010, each ministry will be cut by an additional 2 per cent annually.
The Treasury also intends to privatize banks and government-owned companies, to incorporate government ports and promote free competition. It also plans to split the oil refineries into two competing companies. The postal authority will be incorporated and opened up to competition. Additionally, the government plans to deport 10,000 foreign workers, as well as unifying hospitals and health divisions.
The Bank of Israel recently warned that although the government has taken significant steps to curb its expenditures, uncertainty remains regarding tax revenues and therefore, the deficit could reach 5.5 per cent of GDP, far exceeding the 4 per cent government-declared deficit ceiling.
Shlomo Maoz, chief economist at Nessuah Zannex, noted that the budget is being cut for the third year in a row, with heavy cuts in unilateral transfers, mainly child allowances. "Against a backdrop of relatively high interest rates, declining oil prices and decreasing money supply, competition remains fierce and there will be no major depreciation in upcoming months."
Moreover, he argued, the Israeli economy is working below capacity and at a 10.6 per cent unemployment rate. This is quite a high level of unemployment for a country like Israel receiving $3 billion yearly foreign aid from the US in addition to loan guarantees of $10 billion.
The deficit continues to grow and the government continues to pump money into the economy to cover the deficit, using foreign funds raised overseas. In response, the Bank of Israel is being forced to pump out the extra amount of money by utilizing money market tools, such as its short-term facility known as Makam. Maoz also amended his economic forecasts.
Growth this year, he predicted, will reach 0.9 per cent and 1.4 per cent next year. However, since this year's population growth is 1.9 per cent and expected to grow by another 1.8 per cent next year, per capita GDP, he said, is still declining.
The concern that labour unrest will intensify after the holidays, along with call-up of IDF reservists and anxiety about the security situation when closure of the territories is lifted, cannot be expected to encourage investors.
* This article first appeared on October 22 at Dawn. The author sent it to aljazeerah.info on Oct 27.
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| Earth, a planet hungry for peace |
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| The Israeli apartheid (security) wall around Palestinian population centers (Ran Cohen, pmc, 5/24/03). |
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| The Israeli apartheid (security) wall around Palestinian population centers in the West Bank (Ran Cohen, pmc, 5/24/03). |
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