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U.S. Foreign Aid to Israel: Israel's Bold Initiative to Reduce U.S. Aid


In July 1996, Israel's Prime Minister Benjamin Netanyahu pledged that during his tenure in office Israel would begin reducing American economic aid while becoming more economically self-sufficient. In the Prime Minister's words at at the time, before a joint meeting of Congress, “there can be no greater tribute to America's long standing economic aid to Israel than for us to be able to say we are going to achieve economic independence.” Israel is now prepared to deliver on this commitment.

In recent meetings with Administration and Congressional officials in Washington, Finance Minister Yaacov Ne'eman outlined a plan to gradually phase-out American economic aid to Israel. This historic initiative is in recognition of those who have labored for decades to strengthen both Israel's economic as well as military security. Even as Israel advances on the road to economic self-reliance, the Israeli proposal—which includes some additional military assistance—acknowledges the critical role the U.S. will continue to play in maintaining Israel's security.

The major features of the Israeli plan are:
  • Annual aid reductions leading to a complete phase-out of Israel's $1.2 billion of economic assistance within 10-12 years.
  • Half of the savings from reducing economic aid would be used to increase military aid to Israel from its current level of $1.8 billion per year. Thus, at the end of the period, Israel would get no economic assistance but its military assistance would be at $2.4 billion.

Foreign Aid Success

With its economy growing, partially as a result of past U.S. help, Israel believes the time has come to reduce U.S. economic aid. This decision, however, was not an easy one. Israel is not only still bearing the costs of absorbing nearly 800,000 immigrants over the past eight years—equivalent to the entire population of France moving to the U.S.—but is also implementing substantial budget cuts, all at a time when the dangers in the region have increased.

What is also notable about this decision is how much Israel exemplifies a true foreign aid success story for the United States. For more than a decade, under both Likud and Labor governments, Israel has been dramatically reforming its economy. Inflation was cut from 400% in 1985 to 7% in 1997, trade barriers have been eliminated, and changes in capital rules and a more welcome business climate have led to a huge expansion in foreign investment. American economic assistance has been essential in this process of liberalizing and stabilizing Israel's economy. Congressional supporters of aid can share in these achievements.

Meeting the Security Burden

While Israel is taking this big step toward economic independence, its national security requirements are growing. That is why the Israeli proposal seeks not only to eliminate economic aid but to refocus the remaining aid to meeting its military needs. This will be essential if Israel is to maintain its qualitative military edge, a cornerstone of American foreign policy.

The Israeli plan would shift some of Israel's economic aid to military aid to help Israel confront the increasing strategic threats posed by weapons of mass destruction and ballistic missiles being developed by Iran, Iraq and other countries. As the costs of building and buying advanced weapons to defend itself have skyrocketed, military aid to Israel has been frozen at $ 1.8 billion for a dozen years. Because of the effects of inflation, the value of this aid has eroded by roughly 40%.

At the same time, Israel's defense burden has grown. For example, Israel has just begun taking delivery of new F-15 aircraft which cost $100 million apiece, much more expensive than aircraft previously purchased from the U.S. Israel needs these advanced jets because of their range and capability of striking far beyond its borders. Since countries such as Iran, Iraq and Libya are importing and developing their own advanced weaponry, a partial shift of U.S. economic to military aid is critical not only to Israel's security but to defending American interests in the Middle East as well. As another crisis with Iraq nears, and Iran continues its missile program unabated, a strong Israel remains good for America.

Sources: American Israel Public Affairs Committee (AIPAC)