U.S. Aid To Israel FY 2000


  FY 1998
Actual
FY 1999
Estimate
FY 2000
Request 1
Economic Support Fund $1,200,000,000 $1,080,000,000 $930,000
1The funding level is tentative, as it is the subject of ongoing negotiations between the U.S. and the Government of Israel.

Introduction

The overall goal of U.S. assistance to Israel is to support the furtherance of peace in the Middle East, initiated at Camp David when Egypt and Israel signed the Peace Accords. The process moved forward with Israel's signing of the Declaration of Principles with the Palestinians on September 13, 1993 and the Interim Agreement on September 28, 1995, the Wye River Memorandum of October 23, 1998, and the signature of the Peace Treaty with the Jordanians on October 17, 1994. Israel remains the only country in the region with a fully democratic form of government.

Israel's economy has responded favorably in recent years to the restructuring imposed after the crises and hyper-inflation of the mid-80's. Economic growth has averaged six percent since 1990, as the economy becomes increasingly sophisticated and technologically advanced. Despite this, the government still faces economic challenges associated with absorbing nearly 900,000 immigrants since 1989 in a country of only six million. In 1998, growth slowed to only 1.9%, implying a per capita decline in GDP of .5%, and unemployment grew to over 8.7%. Israel's political and economic stability, stressed by the recent absorption of vast numbers of immigrants, continues to be important in furthering the U.S. foreign policy objective of supporting the Middle East Peace Process.

Concurrently, the unanticipated and substantial expenditures associated with the implementation of the peace agreements with the Palestinians and Jordan have exacerbated Israel's domestic budget deficit. U.S. assistance provides Israel the funds it needs both to promote economic reforms and to carry out a domestic agenda that reinforces the government's peace process policy.

The Development Challenge

There has been some success by the Government (GOI) in stabilizing the economy of Israel, in spite of the massive inflow of immigrants, which has increased the population by about 18% since 1989. Since 1993, export competitiveness has improved, and inflation has been reduced. Expanding business investment and governmental infrastructure investment, coupled with sustained export growth, are projected to help Israel reach its gross domestic product growth rate potential of about five percent. In FY 1999, Congress began a reduction of the economic assistance earmark in recognition of this progress.

To strengthen the economy, more work is needed to liberalize and restructure the large public sector. Continued expenditure reductions and privatization of public sector enterprises are needed, but political obstacles remain.

Other Donors

The United States remains the largest bilateral donor.

FY 2000 Program

The structure of the USAID program for Israel is atypical of other USAID assistance programs in that there is neither projectized assistance nor USAID staff in Israel for this program. Rather, the program supports the implementation of the historic Camp David accords and provides Israel with an annual cash transfer. Hence, there are no structured specific objectives.

The fundamental USAID objective in Israel is to reduce Israel's balance-of-payment pressures as it continues to pursue the economic reforms required for financial stability and structural adjustments needed for rapid sustainable growth. Though the U.S. cash transfer is not conditioned on economic policy reform, the ongoing U.S. State Department-chaired Joint Economic Development Group encourages Israeli reforms to reduce government spending and deficits, to improve tax and public wage structures, to increase privatization, to reform labor markets and to continue to liberalize its trade regime. The cash transfer is used by Israel primarily for repayment of debt to the United States, including Foreign Military Sales debt, and purchases of goods and services from the United States.

By supporting and maintaining the peace process, the program encourages more investment and economic activity, thereby contributing to increased foreign exchange earnings. The GOI's resultant ability to forge new relationships with its neighbors provides further stimulus for exporting goods. Eased border crossings, another result of the peace process, also promise new sources of tourists and export markets

 
FY 2000 PROGRAM SUMMARY
(in Thousands of Dollars)
USAID Strategic & Special Objectives Economic Growth & Agriculture Population & Health Environment Democracy Human Capacity Developmnt Humanitarian Assistance TOTALS
S.O 1. Support policy reforms for financial stability and structural adjustments needed for rapid sustainable growth
- ESF
930,000 --- --- --- --- --- 930,000
Total:
- ESF
930,000 --- --- --- --- --- 930,000
Office of Middle East Director: Kimberly Finan

 


ACTIVITY DATA SHEET

PROGRAM: ISRAEL
TITLE AND NUMBER: Israel Cash Transfer, 271-K638
STATUS: New
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $930,000 ESF
INITIAL OBLIGATION: FY 2000 ESTIMATED COMPLETION DATE: FY 2000

Summary: The purpose of the Israel Cash Transfer is to support policy reforms required for financial stability and structural adjustments needed for rapid sustainable growth. The overall goal of U.S. assistance to Israel is to support the furtherance of peace in the Middle East, initiated at Camp David when Egypt and Israel signed the Peace Accords. Israel remains the only fully democratic government in the region. Its political and economic stability, stressed by the recent absorption of vast numbers of immigrants, continues to be important in furthering U.S. foreign policy objectives in the Middle East.

Key Results: The fundamental USAID objective in Israel is to reduce Israel’s balance-of-payment pressures as it continues to pursue the economic reforms required for financial stability and structural adjustments needed for rapid sustainable growth. Though the U.S. cash transfer is not conditioned on economic policy reform, the ongoing U.S. State Department-chaired, Joint Economic Development Group encourages Israeli efforts to reduce government spending and deficits, improve tax and public wage structures, increase privatization, reform labor markets and continue to liberalize its trade regime. Since 1993, export competitiveness has improved, and inflation has been reduced. Expanding business investment and governmental infrastructure investment, coupled with sustained export growth, are projected to help Israel reach its gross domestic product growth rate potential of about five percent.

Performance and Prospects: FY 2000 funds will be provided as a cash transfer and will be used by Israel primarily for repayment of debt to the United States, including Foreign Military Sales debt, and purchases of goods and services from the United States. The U.S. State Department will continue to encourage Israeli reform to reduce government spending and deficits, to improve tax and public wage structures, to increase privatization, to reform labor markets and to continue to liberalize its trade regime.

Possible Adjustments to Plans: None.

Other Donors Programs: The United States is the largest bilateral donor to Israel.

Principal Contractors, Grantees, or Agencies: The transfer is accomplished by a direct grant to the Government of Israel.

Selected Performance Measures: By supporting and maintaining the peace process, the program encourages more investment and economic activity, thereby resulting in increased foreign exchange earnings. The GOI's resultant ability to forge new relationships with its neighbors provides further stimulus for exporting goods. Eased border crossings, another result of the peace process, also promise new sources of tourists and export markets.


Source: USAID