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«American Aid to the Middle East: A Tragedy of Good Intentions By Yuval Levin Aid in U.S. policy American aid to the Middle East is a tragedy of good ...»

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Foreign Relations and Intercourse, U.S. Code, vol. 22, sec. 2371 (1961).

Ibid. The law also clearly defines “assistance” to include economic and technical cooperation.

Foreign Relations and Intercourse, U.S. Code, vol. 22, sec 2781 (1996).

American Aid to the Middle East: A Tragedy of Good Intentions Page 10 the insupportable (but unexamined) premise that the U.S. is helping itself by helping Egypt.

In sum, U.S. aid to Egypt is remarkably powerless against Egyptian misbehavior in part because it involves only carrots, and no stick. As Barry Satloff of the Washington Institute for Near East Policy has put it: “While important and fundamental areas of U.S.Egyptian cooperation remain intact, I fear that they reflect only an episodic convergence of interests, not a pattern of partnership”34 Aid is not changing that.

Alas, aid has brought about the sort of convergence of interests between U.S. and Egyptian officials that is injurious to the United States. The enormous amounts of money involved inevitably created interests inside the U.S. bureaucracy as well as in the body politic, whose prestige and pocketbooks profit from continued aid. Hence their support for Egypt has less to do with any affection for Egypt or for U.S. foreign policy than with a tacit bargain: American officials help Egyptian officials to get rich, and Egyptian officials help their American counterparts to validate their reputations.

U.S. strategy in the region has come to rely on an intricately constructed and wellfinanced chimera: permanent comprehensive regional peace. This goal requires the suspension of all the normal rules of international politics and diplomacy. Money is the means by which the United States entices the Arab states to play along. Without aid to Egypt, the Egyptians might stray from the U.S. line far more clamorously than they have, and the entire structure of the policy would collapse. Hence American policymakers have committed the nation to continued support of a country they know acts in direct defiance of American interests while using American taxpayers’ money to induce Egyptian officials to help them convince those taxpayers that they are themselves doing a good job.

Egypt is the most prominent and extreme example of this problem, but the problem applies to all of America’s Arab partners in the peace process. In order to support the inherently incredible script of the peace process, the U.S. has had to create a fictional political reality, and the only way to do this is to continue funneling money to the actors.

The promise of aid brings the participants to the table, and the power of aid keeps them from openly defying the script, but just beneath the surface, as we have just seen with Egypt, the realities of politics have not disappeared, and the nations involved act in ways which harm U.S. interests and certainly contradict the vision of comprehensive peace.

House, Policy Toward Egypt, 11. The Committee’s Chairman, Rep. Benjamin Gilman of New York, made the following statement to the members at the conclusion of the hearing: “Egypt has repeatedly called for easing sanctions against Libya and has refused to support even mild antiterrorism resolutions against Sudan. Egypt has opposed U.S. initiatives to compel Iraqi compliance with U.N. resolutions and advocated the reintegration of Iraq into the Arab fold. Egypt has also derailed regional arms reduction talks by insisting on discussing Israel’s purported nuclear arsenal, a move that has prevented progress on the more urgent issue of conventional arms in the region. Moreover, as for the peace process, we hear repeatedly from various sources that until 24 hours before the Hebron accord was signed, Egypt had not been helpful during the negotiations. One might add to this list reports that Egypt’s human rights record has steadily worsened in recent years. Many of our colleagues are also concerned that Egypt has abdicated its leadership role for peace and is gradually adopting a more hostile posture toward Israel.” American Aid to the Middle East: A Tragedy of Good Intentions Page 11 American policy and American interests thus come increasingly into conflict with one another, and aid is a principal cause of this growing contradiction.

Finally, aid is positively harmful because it keeps this contradiction hidden from American eyes and makes the United States a victim of its own generosity.

Aid to Israel The causes and effects of aid to Israel are not entirely dissimilar. There, too, as in the case of Egypt, the powerful distorting influence of aid money has fostered policies that are ultimately disadvantageous to the U.S. There, too, aid has built powerful constituencies for its continuation, regardless of results. But in Israel, the close relationship between the economics of aid and the strategic consequences of aid are clearer and more immediate and dangerous. Much of the confusion and the risk inherent in the current American policy in the Middle East has to do with American aid to Israel.

By any measure, Israel is the largest recipient of American aid. Since 1948, it has received at least $90 billion in direct aid. This is more than twice the amount of combined U.S. aid to all of Latin America in the same period, and over 2.5 times what all of Africa (excluding Egypt) has received. In fiscal year 2001, even before any special aid to cover prospective peace accords, Israel has been allocated $2.86 billion, far more than any other recipient, and more than most regions of the world.35


For the first 25 years of Israel’s life, U.S. aid levels were relatively low. Between 1948 and 1973, the U.S. provided Israel with an average of $122 million a year, or a total of $3.1 billion for the entire period. In fact, more than $1 billion of that amount consisted of loans for military equipment before and during the Yom Kippur War of 1973.36 Prior to 1971, Israel received a total of $277 million in military aid, and approximately $700 million in economic aid.37 All military aid took the form of loans as credit sales, and most of the economic aid was also given as American loans, and not grants.

All of that changed following the Yom Kippur War. President Nixon’s rationale in sharply increasing aid appears to have been strategic, and not – as some observers have claimed – based on domestic political pressures from powerful Jewish groups. As former

Secretary of State Henry Kissinger has written:

When confronted with the realities of power in the Middle East – after much anguish and circuitous maneuvers – he recognized that he must pursue, in the These figures are from the President’s Budget Proposal for FY 2001, since a final budget has not yet been approved by the Congress at the time of this writing. The president’s proposal is available from the Office of Management and Budget and the Government Printing Office.

Mark Clyde, Israel: U.S. Foreign Assistance (Washington: Congressional Research Service, 1997-2000).

Ruttan, United States Development Assistance Policy, 496.

American Aid to the Middle East: A Tragedy of Good Intentions Page 12 national interest, the same strategy which others supported for reasons of ethnic politics: to reduce Soviet influence, weaken Arab radicals, encourage Arab moderates and assure Israel’s security. 38 The original intention of this aid, in other words, was to advance American interests by strengthening an ally. Since 1973, Israel has received an annual package of approximately $3 billion in military and economic aid, and four special aid packages.

The first of these special packages was a $3 billion loan and grant package to fund Israel’s withdrawal from the Sinai following the Israel-Egypt peace treaty of 1979. $2.2 billion of that amount consisted of market rate loans, and the rest was a grant. The second special package was approved in 1985, and consisted of $1.5 billion to combat a severe economic crisis in Israel. The third, approved in 1996, consisted of $100 million to help Israel fight terrorism. The fourth, which also included aid to the Palestinian Authority, was a $1.8 billion package following the Wye River Accords of 1998.

In addition, the United States approved $10 billion in loan guarantees for Israel in 1992, and a variety of other smaller packages, such as refugee resettlement ($80 million annually from 1992-1998 and then reduced to $70 million in fiscal year 1999 and $60 million in fiscal year 2000), and cooperative development programs ($186 million since 1981). In addition, Israel receives funds directly through the U.S. defense budget for joint military projects, like the Arrow missile (for which Israel has received more than $628 million in grants since 1986). Israel also receives offsets on Foreign Military Sales (FMS) purchases, by which U.S. contractors agree to offset some of the cost of military equipment that Israel buys from them by purchasing components or materials from Israel.

Israel’s annual economic aid package was originally a part of the U.S. Commodity Import Program, which provides funds to foreign governments for the purchase of American products. Since 1979, however, this aid has been provided as a direct cash transfer in a single lump sum each year. Starting in 1985, all of Israel’s annual aid (an average of just under $3 billion annually) has been provided as a grant, rather than a loan. Moreover, Israel receives the full amount at the outset of each fiscal year, so that it may benefit from interest, which accrues on the amount throughout the year. Israel is also nearly unique among U.S. aid recipients in that it is not required to provide an accounting of how its economic aid funds are used. In return for these unusually good terms (Israel is the only U.S. aid recipient given aid in a lump sum in this way) Israel promised that the amount of its non-defense imports from the U.S. would exceed the level of economic assistance granted to it in any given year, thus in principle guaranteeing that U.S.

suppliers would not be disadvantaged by the terms of Israel’s aid package.39 In 1998, Israel offered to voluntarily reduce its annual economic aid package in return for an increase in military aid. According to an agreement reached with the Clinton Administration and the Congress, the $1.2 billion economic aid package will be reduced by $120 million each year, and in principle would be phased out over ten years. Half of Henry Kissinger, White House Years (Boston: Little, Brown and Co., 1979), 564.

Clyde, Israel: U.S. Foreign Assistance, 3.

American Aid to the Middle East: A Tragedy of Good Intentions Page 13 the annual savings in economic assistance each year ($60 million) is to be added to Israel's military aid package, which is to grow to some $2.4 billion annually. In 1999, Israel received $1.08 billion in economic aid and $1.86 billion in military aid. In FY 2000, economic aid was reduced to $949.1 million and military aid increased to $1.92 billion. The FY 2001 aid package, as approved by the House Appropriations Committee in 2000 provides $1.98 billion in military assistance and $840 million in economic assistance.40 While this would seem to suggest that total aid to Israel is declining slightly, in fact the Israelis fully expect any progress in peace negotiations to result in far more aid. The total would leap upwards by some $30 billion if the U.S. carries through with plans to finance a future comprehensive accord between Israel and the Palestinian Authority, and any future deals with Syria or Lebanon would certainly bring further sizeable (and renewable) grants from the U.S. Treasury.

Why Aid To Israel?

Why does the United States provide so much aid to Israel? Surely, Israel’s utility for American interests is an important part of the answer, as is a certain natural affinity among Americans for a beleaguered Western democracy in a dangerous neighborhood.

As discussed earlier, America’s new vision for the Middle East also necessitates sizeable economic support. There is no doubt that pressure and lobbying from Jewish political organizations in the U.S. and the power of the Jewish vote also has a great deal to do with the policy. But all the answers have one theme in common: the U.S. gives aid to Israel because it believes that by doing so it will help Israel and U.S. interests as well. This provides the U.S. with clear-cut criteria by which to assess the policy: Does aid in fact help and strengthen the Jewish state? Does it further U.S. interests?

The Results of Aid to Israel

The answer – counterintuitive as it may first appear – is decidedly no. Even at the most basic level, that of economic performance and growth, aid does not strengthen Israel.

Rather, it weakens Israel by exacerbating the most serious source of its weakness: the persistence of a system of institutions and elites that refuse to allow the nation to liberalize and that depend for their existence on the survival of the socialist economy.

Moreover, at the level of strategic thinking and defense planning, aid also weakens Israel by distorting its understanding of strategic realities.

Economics Analysis of the economic consequences of aid must conclude that aid slows growth, stifles economic activity, encourages inefficiency, and keeps alive Israel’s socialist system. It is profoundly counterproductive for the Jewish state.

“House Committee Passes Israel Aid Bill Despite Controversy,” [http://www.menewsline.com], 28 June 2000.

American Aid to the Middle East: A Tragedy of Good Intentions Page 14 That Israel lives under a socialist system should be beyond question. The Jewish state suffers from all the usual maladies of a government-dominated economy. The government owns 92 percent of the nation’s land, nearly all of its natural resources, and a substantial number of major corporations (including Israel’s only electricity and water suppliers, nearly all of its military industries, the nation’s major airline, a number of insurance companies and hospitals). The state also has a controlling stake in the nation’s only domestic (non-cellular) telephone service provider, the nation’s only oil refining firm, and many other key industrial and economic players.

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