When Secretary of State George Shultz went up to the House Foreign Affairs Committee to present the $14.8 billion economic and military foreign aid program for the 1986 fiscal year, he was honest enough to call attention to an asterisk where the figure for economic aid to Israel would normally have appeared. When aid to Israel has been figured out, he conceded, the overall 1986 foreign assistance total "will be higher than the previous year."
That is putting it very gently. The administration knows that the basic economic aid figure for Israel will be $1.2 billion. So does Congress. Annual U.S. economic aid to Israel was put on automatic when Congress decreed that it shall not be less than the cost of servicing Israel's debt to the United States.
So the asterisk was nothing more than a psychological flimflam designed to soften the impact of what inevitably is going to happen: a massive increase in a U.S. aid program for Israel. That may not even be the most important part of it. What really lies ahead is a transformation of the U.S.-Israeli relationship.
Israeli Finance Minister Yitzhak Moda'i is in town to thrash out with Shultz the scope and terms of what is called a "transitional" U.S. program of financial support for Israel's efforts to deal with the most serious economic crisis in that nation's history. Before the government of national unity under Prime Minister Shimon Peres imposed a wage-price freeze, inflation had been increasing at an annual rate of over 1,200 percent. The economy is stagnant. Israel's external debt is staggering. Its currency reserves are dangerously depleted by debt repayments and an adverse balance of payments.
The Israelis are asking for $1.5 billion to rebuild their foreign currency reserves. They woullike it treated as something separate from the basic $1.2 billion in economic aid (and the $1.8 billion in military grants) and to receive part of it in the form of a supplemental appropriation for the 1985 fiscal-year budget, with the balance applied to FY 1986. The administration apparently has no particular quarrel with the money figures. But Shultz has already made it clear that he is not satisfied with the way the Israelis are dealing with their economic problems.
The argument is over basic economic theory. The State Department wants to move toward "free-market" doctrine and away from the Israeli government's pervasive economic intervention: The indexing system that ties pay raises and welfare benefits to the inflation rate; the government subsidies for gasoline and food. Shultz has made it known he would like to see reductions in government subsidies for private industry, an early and deep devaluation of Israel's currency, as well as a tougher war on inflation across the board.
The Israeli response is that the very structure of its economy does not lend itself to a "free-market" approach to its problems. The Israeli government has an expansive health and welfare program. It subsidizes universities and private industry. "Shultz is ready to spend the money but he wants to steer us," says one Israeli. "But you can't translate U.S. solutions into something that will fit the Israeli economy."
A strong U.S. stand could work in favor of Peres, by strengthening his hand with his own government. But it could also force the imposition of policies that would impose hardships of a sort that the Israeli public is not accustomed to. The political consequences, then, could be the collapse of the coalition government.
So there is a lot more at stake in this week's talks on U.S. aid to Israel -- and in the congressional debate to come -- than is normally the case. Hence the asterisk in Shultz's foreign-aid report.