Israel faces an economic crisis as threatening to its security "as any hostile neighbor," and U.S. aid cannot ward off the danger to the Jewish state unless it is coupled with a major reshaping of the Israeli economy, according to a staff study prepared for the Senate Foreign Relations Committee.
"American foreign assistance can help Israel cope with its difficulties and can help mitigate but cannot by itself arrest Israel's problems," said the report released yesterday. It was prepared by committee staff members Michael Kraft and Gerald E. Connolly.
The report became public as two teams of Israeli officials concluded talks here yesterday about future U.S. military and economic aid. The Israelis are understood to be seeking increases that could raise U.S. assistance from $2.6 billion now to around $4 billion next year.
The report noted that Israel and the Reagan administration have discussed such possible U.S. help as $1.5 billion in emergency economic aid over two years, a line of credit to shore up Israel's foreign exchange reserves and diversion of some military aid funds to economic purposes.
But the report, while agreeing that U.S. aid "should be seen as mutually enhancing elements in helping Israel regain its economic health," said it would not be of help unless the Israelis adopt a massive austerity program including major domestic budget cuts, freezes on wages and prices, an overhaul of the system for indexing wages to insulate them against inflation and greater emphasis on producing exports.
It noted that administration officials "have indicated that any assistance will be predicated on a comprehensive program of economic reforms" and added that negotiations with the Israelis about these changes should be "intensively explored in close consultation with the U.S. Congress."