January 3, 2003

JERUSALEM — Israel is putting the final touches on a $15 billion special aid request to the United States to bolster an economy under pressure from the Palestinian uprising and preparations for any attack by Iraq.

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Israeli treasury officials, who have met with aides to Prime Minister Ariel Sharon and U.S. National Security Advisor Condoleezza Rice, are preparing to present the package to Bush administration officials in the coming weeks.
The package, comprising about $5 billion in new military aid and $10 billion in loan guarantees, would be spread out over a three- to five-year period. It would be in addition to nearly $3 billion that Israel receives from the United States each year.
"Fighting terrorism is not only about security, it's about the economy," said Finance Ministry Director General Ohad Marani.
"It's very difficult funding the extra needs of defense. The burden is made more difficult because the economy has shrunk. We're asking the Americans to share part of the burden," Mr. Marani said.
Israel, the largest recipient of U.S. foreign aid, receives about $2.1 billion annually in military aid and $600 million in civilian aid.
A State Department official declined to comment on Israel's supplemental aid request but reiterated long-standing U.S. support for the Jewish state.
The official said the United States is committed "to maintaining and enhancing Israel's security and qualitative edge over any combination of adversaries."
The Palestinian uprising is straining Israel's budget by inflating military expenditures while putting the economy in recession. That, in turn, has forced the government to cut spending in line with lower tax receipts.
The Israeli economy is expected to shrink 1 percent this year, compared with the 4 percent annual growth that analysts believe should be within the country's ability.
Analysts say the timing of the request as war clouds gather in the Persian Gulf isn't coincidental.
Israel hopes to receive the aid as a reward for good behavior during a war in which it may be asked once again to restrain itself even if it absorbs missile strikes from Iraq.
"The unspoken word is that it is going to be part of an inducement package for Israel to stay on the sidelines," said Scott Lasensky, a research fellow at the Council on Foreign Relations in New York.
"It's a positive inducement. It's like political risk insurance. Companies buy it and so do countries," he said.
Israeli officials believe it is unlikely that a new aid package would be approved in Washington before a campaign to topple Iraqi dictator Saddam Hussein, for fear of alienating Arab countries whose political support will be crucial in the effort.
The aid, they say, will help defray costs of deploying the Arrow missile, Israel's anti-ballistic missile system on which the country will rely to intercept Iraqi Scud missiles.
The military package also would make up for $800 million in aid pledged by the Clinton administration to ease the burden of Israel's withdrawal from southern Lebanon in 2000. Neither President Clinton nor President Bush has followed through on the promise.
The loan guarantees, in which the United States would act much as a co-signer, would provide Israel a cheaper alternative to finance its national debt than floating bonds on local financial markets.

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Updated at 8:30 p.m.