U.S. Economic Assistance for Israel

Gao ID: ID-78-31 August 18, 1978

U.S. support for Israel's political and economic stability has been expressed through a variety of economic and military aid programs. The Security Supporting Assistance Program, involving a Commodity Import Program (CIP) and cash grants, is the primary economic aid program for Israel. This aid is usually justified for political rather than solely economic reasons. Under CIP, the United States reimburses Israel for commercial and government purchases from U.S. suppliers, excluding purchases for military use or for sale in occupied territories. This eased Israel's balance-of-payments deficits. The cash grant is called untied aid because the funds do not have to be spent on purchases in the United States. Funds are to be spend on nonmilitary commodities in nonoccupied areas.

CIP carried $258 million in undisbursed funds into 1978 because reimbursements have not kept pace with increases in annual funding levels. A key CIP question is whether it is essential for aid levels to be linked to specific U.S. purchases or whether it is acceptable to establish that Israel make certain general levels of U.S. nonmilitary imports. Present procedural requirements have been burdensome to both the Agency for International Development (AID) and to Israel. Alternatives to present methods were considered in response to GAO suggestions. The State Department and AID felt that program objectives could best be served by replacing CIP with a cash transfer program. Although the impact of this proposal cannot yet be fully evaluated, GAO believed that it would alleviate the problem of documenting specific U.S. exports and would expedite the transfer of funds. Its effect on U.S. exports to Israel is not clear, but arrangements could be made for continuing U.S.-flag vessel shipments. Fiscal year 1979 foreign aid bills authorize a cash transfer program for Israel linked to maintenance of some level of U.S. exports. To implement the proposed program, AID and State officials said that formal understandings with the Israeli Government would be reached on levels of U.S. nonmilitary exports and on the U.S. competitive position.

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