Aid Is No Aid for an Israeli Army Fighting Reform

Officials are counting on Washington to move forward an increase in annual military aid. They should focus more on cutting waste by reforming the budget.

AP

When Prime Minister Benjamin Netanyahu met this week with U.S. President Barack Obama in Washington, the top of the to-do list was the kind of military aid Israel would receive to compensate for its heightened security risks following the Iranian nuclear deal.

Experts speculated that Netanyahu would ask his hosts for new offensive systems, including equipment and weapons for finding and destroying underground bunkers and tunnels, as well as improved U.S.-Israeli cooperation in defense and intelligence.

Israel leads the world in U.S. military financial aid, but Netanyahu wants more. The aid package he’s asking for would grow from just over $3 billion a year to $4 billion, or even $5 billion in the decade to come.

If Obama agrees, one would expect the money to begin flowing in 2018 when the next aid agreement goes into force. But informal talks on the agreement have been underway for a while in a positive atmosphere, and the Americans seem ready to meet Israel’s desires. One is to get the extra aid sooner, which means it’s quite possible the new aid agreement will go into effect as early as next year.

As things stand, Netanyahu is refereeing a fight between the defense and finance ministries over the size the of army’s budget next year. So getting the extra aid from Uncle Sam would solve everyone’s problems in one fell swoop.

But for those who think the army’s problem isn’t money but reforms, more American aid isn’t what Israel needs at the moment. Maybe it needs just the opposite.

The defense budget has a raft of structural problems, many of which have been highlighted by a special panel, the Locker committee. The biggest problem is the enormous outlay for pensions and rehabilitation services — and the rapid growth of these sums. This problem needs radical surgery, not more U.S. military aid as a palliative.

Who’s footing the bill?

Reuters

When the Finance Ministry talks about the defense budget for 2016 being “no more than 56 billion shekels” ($14.3 billion), it’s not telling the public that the American taxpayer is ponying up nearly 12 billion shekels of that. In other words, for the Israeli taxpayer, the defense budget is “only” 44 billion shekels.

This makes it the second biggest item in the budget, after the 50.5 billion shekels the government is slated to spend on education in 2016. The problem is that 56 billion shekels isn’t enough for the Defense Ministry, which is demanding at least 62 billion shekels.

Where will the extra 6 billion shekels come from?

Both the finance and defense ministries have had their eyes on Washington this week in hopes the missing 6 billion shekels will come from the White House. It’s Netanyahu who in the end will decide on the size of next year’s defense budget; he’s the one who might be able to coax Obama into increasing the aid package even now.

Of course, it’s not at all clear that this is what will happen. Despite the apparently warm and friendly meeting this week, Obama is still no great friend of the prime minister and may not be keen to go out of his way and help out during Israel's fiscal infighting.

Over the last month, officials in Jerusalem have been working hard — but so far without success — to get an agreement on the defense-budget saga for next year, as well as for 2017 through 2020. The goal is to put the Israel Defense Forces' multiyear reform plan, known as Gideon, into effect, as well as the Locker committee proposals for reforming military spending and the structure of the defense establishment.

Defense officials increasingly agree — especially those in IDF Chief of Staff Gadi Eisenkot’s office, that these are real problems. He understands that if the problem of pensions and rehabilitation, as well as the inflated size of the army, aren't dealt with soon, the defense budget will become a weight on the rest of government spending. It will make it very difficult for the cabinet to approve the multiyear plan Eisenkot is backing so enthusiastically.

In a long letter sent in August by Obama to New York Congressman Jerrold Nadler at the height of the president’s efforts to pass the Iran deal, Obama said no U.S. administration had done as much for Israel’s security as his. He promised to ensure Israel’s qualitative military edge.

Obama also noted that since 2009, the United States has provided Israel with military aid topping $20.5 billion, more than half of all U.S. military aid. In addition, Washington has provided Israel with $3 billion in aid for developing antimissile systems, including the Arrow 3 and Iron Dome projects.

He said Israel would receive the world's most advanced weaponry, including F-35 jets starting in 2016 — a plane that no other country in the Middle East would receive.

American generosity

Obama pledged to enhance security cooperation with Israel, with additional funding for missile-defense systems. And joint missile-defense projects would be expedited and tunnel-detection technologies developed.

The president also promised to step up cooperation with Israel to counter Iranian ambitions in the region, especially regarding arms supplies to Hezbollah and Iranian involvement in Syria.

Don’t think the United States has always been such a good friend of Israel and a source of advanced weapons and generous military aid. Washington enforced an arms embargo before Israel’s War of Independence in 1948. Only in 1962 did President John F. Kennedy lift the embargo by selling Hawk antiaircraft missiles to Israel, which he did only because he defined them as defensive weapons. Israel paid full price.

In 1965, the United States sold Israel offensive weapons for the first time in the form of Patton tanks. The $3 billion of annual military aid only started in 1985.

Since 1962, Washington has provided Israel with more than $120 billion in aid — civilian and military — an amount equal to almost half a trillion shekels in terms of today’s strong shekel.

In 1977, a short time after being elected prime minister, Menachem Begin announced he would forgo American aid. At the time there were two unequal parts to this largesse — $1.8 billion in military aid and $1.2 billion in civilian aid.

The entire Israeli political leadership rushed to cover up Begin’s announcement, and a new agreement was reached in which the civilian portion was gradually reduced to zero and military aid was increased. But the total remained at about $3 billion a year.

As a result of agreements made by Netanyahu’s first government in 1996-99, the entire $3 billion became military aid. Still, on occasion the United States provides Israel with aid topping $3 billion.

The highest amount ever provided in a single year to Israel came in 1979, the year the peace treaty with Egypt was signed. It included $15.7 billion in both loans and grants. All told, American aid in all forms from 1950 through 2015 equaled about 3% of Israeli gross domestic product over this period.

Over the years, the value of this aid has eroded because of the weakening dollar. In any case, Israel is allowed to spend 26.5% of the annual aid budget in shekels in Israel for defense purchases.

The rest must be spent on defense purchases in the United States. Of course, this benefits U.S. defense contractors at the expense of their Israeli counterparts.

The American military aid is deposited in a U.S. bank, and from there Israel is allowed to spend the money on approved acquisitions. The money earns interest, which is used to reduce Israel’s debt to the United States.