March 1992, Page 21, 22

From the Hebrew Press

To Get Loan Guarantees, Israeli Government Counts on U.S. Ignorance

By Dr. Israel Shahak

U.S. congressmen seeking to bolster the case for loan guarantees for Israel by the misleading assertion that Israel is a good credit risk would be highly embarrassed if their American constituents could read Hebrew. Israeli newspapers are printing gloomy assessments of the country's economic outlook and surprising revelations of how the Israeli government plans to spend funds freed up by the loans.

Ignoring uncertainty over the amount of U.S. guarantees, or whether Israel will obtain them at all, the first expected $2 billion yearly installment already has been included in the Israeli government's 1992 budget. Inadvertently, a document commissioned by the Israeli government from Ya'akov Lifshitz, a former director general of the Israeli Treasury, revealed that Israel also has plans to spend $3.5 billion in loans expected from other countries, contingent upon receipt of the $2 billion in U.S. guarantees. Lifshitz wrote that the entire expected $5.5 billion is "already included in the Israeli budget" for 1992. Furthermore, the Lifshitz report reveals "that without getting the $10 billion in American guarantees over the next five years as anticipated, Israel will not be able to obtain the needed $20 billion from any other source. . . since in the financial world no one will want to lend any money to Israel after the U.S. refuses to grant the guarantees." In short, Israel intends to borrow enormous sums starting immediately. Does it have any possibility of repaying them? Israel's Hebrew press provides revealing answers.

On Jan. 1, one of the most prominent Israeli economic commentators, Gideon Eshet, published two articles in the Yediot Ahronot Financial Supplement. One, based upon economic data for 1991 contained in the preliminary report of the Israeli Bureau of Statistics, reveals that the immigration of Jews from the former Soviet Union reduced per capita GNP by 1 percent in 1991, despite an aggregate increase of 5.2 percent in Israeli GNP. Much of the GNP increase resulted from a 33 percent growth in apartment housing construction. Industrial production increased by only 6 percent, while agricultural production decreased by 14 percent. All this reflects the fact that new immigrants, by and large, are willing to accept jobs, no matter how menial, in the towns, but absolutely refuse to work in agriculture. The jobs were there only because, beginning in the summer of 1990, the Israeli government radically restricted the issuance of work permits to Palestinians from the occupied territories.

Because in Israel economic considerations pale in comparison to racist and "security" considerations, so long as the U.S. lavishes free money (whether in the form of aid or of guarantees) on it, the Israeli government will stick to its racist policies regardless of their economic consequences.

In short, Israel intends to borrow enormous sums starting immediately.

For Israeli economic forecasting, the two crucial indicators are investments and the balance of payments. Eshet reports that although in 1991 investment increased by some 40 percent, following an increase of only 17 percent in 1990 and near zero investment growth from 1985 to 1989, the bulk of this increase occurred in apartment housing construction. Hardly any other construction was underway in 1991, meaning no new industrial projects are planned for 1992. A large part of that construction, estimated at between 25 and 40 percent, took place in the occupied territories. As for the balance of payments, the trade deficit rose by $2.5 billion, or 50 percent, in a single year, to reach the total of $7.5 billion. This one-year deficit equals what Israel hopes to obtain in U.S. aid during the next two and a half years.

In his second article, "Unemployment Exceeds 10 Percent," Eshet tries to interpret the economic data he has collected. "By any accepted standard of assessment, 1991 ended badly," he writes. "The data of the Israeli Bureau of Statistics (in particular the decrease of the GNP per capita by about 1 percent) point to a devastating failure."

Unemployment in December 1991 exceeded 10 percent. Its real extent is probably higher, according to Eshet, because many Israelis from the three most affected categories (demobilized soldiers, new immigrants and Israeli Arabs) no longer bother to apply to the official employment offices.

Not even a fraction of the information reported here is being acknowledged to U.S. authorities, let alone the American public. This state of affairs was described by Nehama Du'ek and Gideon Eshet in an article entitled "How Deceptions are Being Sold to the Americans" in Yediot Ahronot's Financial Supplement of January 10.

The two authors analyze a recent document drafted by the Israeli Treasury and submitted to the U.S. government as a supplement to the first Israeli request for guarantees. "This new and thick document is no more than a strenuous exercise in self-beautification," the authors report. "Israel presents itself as embarking on an exemplary economic policy, certain to succeed." Israeli production and exports are promised to "boom instantly," allowing Israel to repay the guaranteed loans with ease.

Crude Mendacity

Nothing that "the chapters of the document contain both analyses of the economic past and predictions of future miracles," the authors wisely confine themselves to the former, and thus reveal the document's crude mendacity. Americans, for example, are assured in that document that a new Israeli government-owned company, "Yozma" ("Initiative"), was founded "to encourage investment in ultra-modern projects in the private sector." The authors acidly mention "that 'Yozma' had for many months (since April 1990) been in the process of formation" but this was not yet completed due to a factional dispute within Likud over the appointment of directors.

Americans also are assured that "the government has decided to slash state subsidies for water and public transportation. But the document conceals the fact that the Knesset reversed the government's decision regarding water subsidies and that the minister of transportation publicly announced that the decision regarding the subsidies for public transformation would not be carried out."

Noting that "the Americans love nothing as much as privatization," the authors quote from the Israeli government a number of promises of the privatization of government-owned companies.

There are good political reasons for putting no credence in such promises. No less than 25 percent of the Likud Central Committee members are directors or close relatives of directors of government-owned companies.

After revealing other official Israeli deceptions, the two authors conclude: "Our message to the Americans is true-to-type Israel: 'Give us money and have confidence in us! Everything will be OK. And besides, why should you worry? What does $10 billion really matter between friends?' As long as the Americans so desire, they will continue to swallow all deceptions."

In all fairness, the Israeli Minister of Finance decieves not only Americans, but other Israeli ministers as well. Minister of Trade and Industry Moshe Nissim (who, like Minister of Finance Moda'i, is a member of Likud), during an interview with Nehama Du'ek printed in the Jan. 14 Yediot Ahronot Financial Supplement, charged that "the figures supplied by the [Israeli] Treasury are not true. They are all lies and deceits."

There is no proof, however, that Nissim is a better economist than Moda'i.

After attending press conferences at which Nissim boasted of how much he had done to encourage investment and open new factories in Israel, Israel Tomer writes, in the Yediot Ahronot Financial Supplement of Jan. 22, that he investigated these claims by inspecting balance of payments data collected by the Israeli Bureau of Statistics for the first nine months of 1991. To his astonishment, Tomer writes, he found the exact opposite of what Nissim had claimed. Instead of investment being attracted to Israel, capital is fleeing from Israel.

"None of Nissim's data could be confirmed by official statistics," Tomer wrote. "In the first nine months of 1991, total private investment in Israel amounted to $100 million," a paltry sum by any standard. "At the same time, however, Israeli private investors invested $259 million abroad."

Spending on Settlements

As reported in Ha'aretz of Jan. 23, Peace Now reveals that the Israeli government in 1991 spent 2.5 billion shekels ($1.1 billion) on settlement construction alone. Other Israeli government expenditures for boosting the Jewish presence in the territories are more difficult to trace because they are deliberately hidden throughout the Israeli budget.

For example, the religious university, BarIlan, located well within Israel, was encouraged to open a branch in the West Bank. The Hebrew press reports that as an inducement to enroll there, students, most of whom live around Tel Aviv, are offered special stipends and government-paid transportation in a fleet of buses that deliver them daily to and from the West Bank campus.

Such expenditures, safely ensconced in the budgets of the ministries of education and transportation, will never appear in public estimates of Israeli expenditure for boosting the Jewish presence in the territories. My private informants estimate that these expenditures amounted to about $2.4 billion in 1991, more than twice the expenditure on construction alone, and 77 percent of total annual U.S. aid to Israel. This estimate explains why predictions of Israel's economic future are so grim.

Saudi Offer Rejected

In April 1991, the Saudis and their allies reportedly offered Israel, via Secretary of State James Baker, generous terms of settlement which were rejected by Shamir and Defense Minister Moshe Arens out of hand. As reported by Pinhas Inbari in Al Hamishmar of May 22, 1991:

"James Baker proposed to Defense Minister Moshe Arens that pro-American Arab states would renounce their economic boycott of Israel in exchange for some attenuation of conditions of the Palestinians in the territories. Arens rejected the proposal out of hand, just as he refused on principle even to begin negotiating another version of the deal, by which the termination of the Arab boycott would be offered in exchange for cessation of the Israeli settlement drive."

As Inbari comments, "Shamir personally decides matters of such importance," and he only wants "the perpetuation of domination over Greater Israel. He is not interested in any Saudi gestures," even if such Saudi offers could remedy Israeli economic problems.

By the same token, as long as Shamir hopes to obtain free money, whether as aid or guarantees, he will oppose any meaningful concessions to the Palestinians and also any meaningful form of regional economic cooperation with Arab states, which alone could solve Israel's economic problems.

Israeli economic problems could rather easily be remedied by means of a just peace, based on Israeli withdrawal from the territories and recognition of the right of the Palestinians to establish their own state. In the wake of such a peace, normal trade relations between Israel and Arab states could be inaugurated instantly.

Any kind of U.S. aid to Israel, in particular the much-desired guarantees, would only prompt Shamir to carry on with his policies, thereby deepening Israeli economic woes, while postponing all chance for economic improvement. Money from America precludes any chance for peace, or for any interim arrangement which might eventually lead to peace. Instead, it increases the likelihood of war.

Dr. Israel Shahak, a Holocaust survivor and retired professor of chemistry at the Hebrew University in Jerusalem, is chairman of the Israeli League of Human and Civil Rights. His monthly translations From the Hebrew Press are available to Washington Report readers for $25 a year.

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