Key members of Congress, upset with the administration's continued deferral of Israel's request for $1.5 billion in economic aid over the next two years, warned yesterday that they may take the initiative to provide more funds if the White House delays much longer.
W. Allen Wallis, undersecretary of state for economic affairs, told the House Foreign Affairs subcommittee on Europe and the Middle East yesterday that Israel's lack of progress in reforming its economy has forced the administration to "defer for the time being" any response to the Israeli request.
"Additional U.S. assistance would not resolve Israel's economic problems and, indeed, could help to perpetuate them," Wallis said. New funds, he said, "would simply disappear, the economy will not improve, and they'll be back with bigger problems later."
Rep. Benjamin A. Gilman (R-N.Y.) told Wallis he was "certainly paving the way for a congressional initiative," and several other committee members from both parties said they agreed.
"We have to fill in the numbers" for a supplemental appropriation for fiscal 1985, said subcommittee Chairman Lee H. Hamilton (D-Ind.) after the hearing. "I expect it would be about $800 million," the amount the Israelis have requested.
Wallis responded that "Congress wouldn't buy anything with it, for the Israelis nor for us." He promised to try to offer an aid proposal in time for the subcommittee's budget markup session next Wednesday.
The full Foreign Affairs Committee has backed the administration this year in urging Israel to restructure its economy before it received more U.S. economic aid. But most of its members wrote Secretary of State George P. Shultz last week asking that the administration spell out its plans and conditions for aid.
The administration has proposed $1.8 billion in military aid for Israel for fiscal 1986. But on the economic question, the administration is caught between the visit to Washington yesterday of Israeli Finance Minister Yitzhak Modai and the visit next week of Egyptian President Hosni Mubarak. An aid increase to one country is traditionally matched by an increase to the other.
Wallis, U.S. representative on a joint commission with Israel on ways to solve the country's economic crisis, outlined for the first time four areas where the administration believes substantial reform by Israel is needed:
* Budget overruns have been so severe that "it used to be one to two years before they knew what they had spent," Wallis said. Legislation to control overspending has not passed the parliament.
* The increase in the money supply fueled inflation that reached 1,200 percent a year "the last time the figures were meaningful," before price controls were imposed, Wallis said. "They're continuing to print money just as fast as ever."
* Jobs are concentrated in unproductive areas of the economy, but Israel has made no provision to move people into more productive fields.
* The exchange rate for the shekel is pegged to the dollar rather than to the currencies of Europe, where Israel does most of its trading.
The situation could approach crisis within three or four months in Israel's dollar reserves, which are plummeting at an accelerating rate and fell $200 million to $300 million a month last year, testified Russell Misheloff, deputy director of the State Department office of Middle Eastern and European affairs.
He estimated current Israeli reserves at $2.5 billion and said $1.5 billion was the point that would probably "create a significant amount of unease" about financial collapse.
The Israelis have suggested that any U.S. aid legislation establish "benchmarks" of economic progress that would trigger additional payments as the Israeli economy meets the targets, Wallis said. He emphasized that the benchmarks would not be conditions, which traditionally have never been attached to U.S. economic aid to Israel.
"If they push it, we'll look into it," Wallis said.