"all past U.S. loans to Israel have eventually been forgiven by Congress, which has undoubtedly helped Israel's
often-touted claim that they have never defaulted on a U.S. government loan."
November 17, 2002
Feeding the Cuckoo
By Paul de Rooij*
Since Sept. 11, Americans have thought of themselves as the target of
terrorists, emanating mainly from the Middle East. It may thus surprise them
to learn that their own actions are in large part responsible for their
problems and resentment in the Middle East. In particular, we argue that the
massive aid flows and armaments transfers to Israel are largely responsible
for the problems between Israelis and Palestinians today. The repercussions
of this conflict reverberate everywhere in the region to the great detriment
of the rights of the people in the area, but remarkably, also to the
detriment of the US's long-term interests.
Americans by nature tend to look closely at their government's
expenditures, to trim the fat wherever they can find it - welfare, social
security, health care, education. all except when it comes to Israel. A
valuable exercise for any American would be to examine the huge handouts
given to Israel, which may reveal shocking facts and motivate them to a take
closer look at what is done in their name. Here is a quick overview of US
aid flows to Israel.
There are open and upfront economic and military handouts, and the table
below lists the official numbers. Economists say that in the presence of
inflation, a dollar yesterday is worth more than a dollar today, and an
adjustment must be made to obtain meaningful comparable figures over time.
It is highly desirable to express the aid flows in constant 2001 dollars, so
that these figures mean something to us today. Inexplicably, this simple and
standard transformation is never done pertaining aid flows to Israel - an
omission that understates the aid flows. Now, adjusting the data and
expressing it in 2001 constant dollars shows that the visible aid flows to
Israel were $35.7bn over the past decade, and $143bn since 1967 [note 1] -
the date after which US aid to Israel really took off. The latter stands in
stark contrast with the unadjusted $83bn US aid since 1967 that is usually
US aid to Israel: 1992 -- 2001, and expressed in constant 2001 USD
USD Billion(1) + (2) Inflation Constant 2001
Year Military Economic Total BN adjustment Total BN USD
1992 1.80 1.30 3.10 1.26 3.91
1993 1.80 1.30 3.10 1.23 3.80
1994 1.80 1.30 3.10 1.20 3.70
1995 1.80 1.30 3.10 1.16 3.61
1996 1.80 1.35 3.15 1.13 3.55
1997 1.80 1.33 3.13 1.10 3.46
1998 1.80 1.28 3.08 1.09 3.35
1999 1.86 1.15 3.01 1.06 3.20
2000 3.12 1.01 4.13 1.03 4.25
2001 1.98 0.90 2.88 1.00 2.88
Total 31.78 35.70
Inflation adjustment derived from the CPI-U index
Col(5) = Col(3) * Inflation Adjustment
Now, one must put that into perspective. Take the Jewish population of
Israel (5.24m) - the primary beneficiaries of the aid, and one obtains a
$540 per capita benefit just for 2001 - four times as much as the touted Tax
Cut of 2001 to Americans! [Note 3] Now, if the hard-working American
families ever find this out, what can one suppose they would think of it?
NB: The calculable aid flows to Israel constitute about 40% of the US's
foreign aid budget (depending on how loans are accounted).
Up to now we have only dealt with the aid flows that are visible to all
Americans - the government's audit agency, the GAO, will have no problem
computing such numbers. But in addition, one must now account for the long
list of hidden subsidies.
The biggest unofficial additional subsidy comes in the form of US loans
to Israel subsequently forgiven by an act of Congress. That is, every year
Congressmen engage in an ingratiation-frenzy to show that they are "friends
of Israel," and this often entails forgiving loans. It is difficult to
determine the sums involved, but this practice explains why Israel is
overjoyed to obtain loans - these will eventually be forgiven in any case.
As Stephen Zunes stated, ".all past U.S. loans to Israel have eventually
been forgiven by Congress, which has undoubtedly helped Israel's
often-touted claim that they have never defaulted on a U.S. government
loan." [note 2]
A few years ago Israelis bombed Lebanon with American-made F16 fighters.
What was remarkable about this is that the bombs used were "on loan from the
US." It is rather odd to lend anyone a bomb. There are deeply disturbing
implications that an American owned bomb is thrown on Lebanese people by a
third party, but we'll avoid this discussion. The explanation for this odd
arrangement is that the Pentagon budget is being used to subsidize Israel.
Thus, the Pentagon procures the bombs,
and then they are shipped on loan to Israel. This amounts to a clear
additional subsidy, especially if those bombs are never seen again. The
extent of this underhand subsidy can't be calculated. There are also
questions about the "pre-positioned" armaments to be used by the US
military; Israelis can use these at any time.
The Pentagon budget often includes R&D programs developed by Israeli
defense contractors. Once again, this is a direct subsidy of Israeli
industry. While one may ask whether the Pentagon obtains any benefit from,
an even more pertinent question is whether US defense technology is
compromised by this practice.
In fact, Israel receives all the latest military gadgets. Usually these
weapons don't carry a price tag, and it is difficult to determine how much
was spent on the military transfers. It is easy for the US government to
manipulate these figures to "under invoice" military transfers to Israel -
again, hiding the true cost from the US taxpayer. Certainly, Israelis won't
accept the $10,000 military toilet seat, but maybe will take it for $0.50.
Egypt, the second largest US foreign aid beneficiary, receives the
disbursements on a quarterly basis, and hundreds of American bureaucrats
oversee the use of the funds. In contrast, the disbursement of aid to Israel
is done in a lump sum once a year, and the funds disappear into the general
kitty with no American auditor in sight. The additional cost to American
taxpayers of disbursing the aid once a year equates to $250m per year.
Every so often, an American president will state that aid to Israel will
be made conditional on it not being spent in the Occupied Territories.
However, once the aid is handed over to Israel, then there is absolutely no
control over it. Israelis can always disingenuously claim that the funds for
the settlements come from other accounts - American's gullibility is always
taken for granted.
Countries in Northern Africa have on occasion requested USAID
technicians for various projects. Sometimes the technician showing up for
the project is an Israeli contractor, or the aid recipient is asked to
contact the Israeli company directly. This is an odd practice, and no other
nationals are used in a similar fashion. Once again, what is at play is an
indirect subsidy to Israel using the foreign aid budget.
Israel has on several occasions obtained "US loan guarantees" on huge
loans that Israel placed in various markets. If Israel doesn't default on
those loans, then the cost to the taxpayer will be zero. However, the
general accounting practice is to allot for the possibility of default, and
thus costing a portion of those loan guarantees. In the case of Israel, such
a standard practice isn't implemented.
The implications of the loan guarantees are also enormous. In the early
1990s, Israel received guarantees on loans of $10bn, and it is currently
lobbying for another batch of $10bn loans guaranteed by the US taxpayer. If
in the future the US decides to become more assertive and perhaps reduce its
economic aid to Israel, then Israel could default on its loans - a likely
possibility. The US would be left with massive bills to cover the loan
guarantees. The loan guarantees further tie in US policy to Israeli whims,
and therefore they should be rejected.
For the same reasons one has to be wary of the loan guarantees one also
has to be wary of the huge issuance of "Israel bonds" in American markets.
Often such bonds enter the pension funds of ordinary Americans, and thus
future of Israeli and US policy impinge on the welfare of ordinary
Americans. Scrutiny of the policy pertaining to the inclusion of such bonds
in pension funds is something ordinary Americans should be concerned about.
One often hears that Irving Moskowitz, the "bingo parlor" magnate,
transfers funds from his California operations to pay for the development of
illegal settlements. In the process, he obtains various US tax advantages
because the funds putatively go to humanitarian projects. Why should such
funds disappear in Israel without paying the requisite US taxes? At a time
when the US gov't is clamping down on numerous humanitarian organizations
operating in the region, it would seem that projects in the illegally
occupied territories should also be off limits. Once again, it isn't
possible to verify the extent of this abuse.
Jordan recently obtained a preferential trade agreement with the US.
However, the agreement is often conditional on products being produced in
partnership with Israeli companies. This equates to a low value added
assembly in Jordan, and Israeli companies reaping the bulk of the benefits.
Nowhere else has such a conditionality been applied to US aid
or trade agreements. It costs the US because even more cheap products pour
into the US with lower tariffs. Although the agreement is meant to aid
Jordan, it also benefits Israel. The cost in terms of Jordanian resentment
is always ignored.
On several occasions, the disbursement of funds to Israel has been
delayed. As soon as this happens, Israelis will clamor to receive the
interest due for the days that the funds weren't in their possession, a
preposterous situation. Assume that you promise someone a handout on a
certain date, and if you delayed, would you pay interest on the handout?
Cuckoos make nice cooing sounds in the forests. They also deposit their
eggs amidst the nests of the brown-hooded cowbirds. The cuckoo chick is
about three times larger than the cowbird chicks, and will often drive them
from the nest or starve them out. The mother cowbird will nearly exhaust
herself attempting to feed the demands of the cuckoo in its nest - a
parasite that it doesn't recognize as an alien in its midst, even when it is
bigger than the mother cowbird herself! The parasite gains control not only
of the nest, but also of the mother cowbird that frantically seeks to feed
Israel is America's cuckoo. Massive aid flows go in ever increasing
quantities to the cuckoo, and the negative aspects of this are evident for
all to see. It is increasingly dangerous for Americans to set foot in the
Middle East, the hostility directed at them originates primarily from
Israeli actions in the area. Few people forget that the bomb dropped on them
was US-made (maybe even US-owned), dropped by a US-made F16, piloted by an
Israeli pilot, and the whole thing made possible by US funds. We all know
that some Middle Eastern hostility has hit America's home soil. Why
Americans should subject themselves to the
whims and demands of the cuckoo remains as one of today's greatest
mysteries. All the justifications proffered for the aid flows ring
increasingly hollow, and raise significant questions on why this detrimental
It is only when Americans start adding up all the handouts and adjusting
them to inflation that perhaps they will realize that its
relationship with Israel is truly harmful. Americans may also start costing
the resentment and hatred that Israel has engendered to themselves. A simple
step to change the situation is to determine who is boss, who really
controls the US budget and its foreign policy. The nature of democracy in
America - and elsewhere - depends on this. The peace of the region, and
alas, peace in the rest of the world, depend on it too.
Paul de Rooij is an economist living in London. He can be reached at
prooxhotmail.com All items referred to in this article can be found in
various issues of the Washington Report on Middle East Affairs. Summary:
Note 1: There are many issues arising when computing such numbers, and on
valid grounds, several can be justified. The primary one will be how to
account for loans - given that most of them are subsequently forgiven, it
may be valid to equate them as actual transfers. A more accurate measure
would entail obtaining figures on loans that actually have to be repaid -
figures we don't have. However, the numbers quoted as US aid to Israel don't
include the loans. The figure produced here
from 1967 onwards equates the loans as economic aid - assuming most of those
loans will never be repaid. NB: No adjustment was made for interest due on
Note 2: www.wrmea.com/html/us_aid_to_israel.htm
Note 3: The Tax Cut of 2001 amounted to about $500 / family on average.
Assuming a family of four on average, the Israeli above board handout of
2001 was about four times this amount. and that happens every year!
(c) 2001 Arabic Media Internet Network
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