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August 2, 2011 4:02 pm

US Avoids Fiscal Crisis, Israel Faces Fiscal Challenge

avatar by Maxine Dovere

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President Obama and Prime Minister Netanyahu at the Oval Office.

In Washington, the near “drop dead” economic deadline, approached. Finally, in a late Sunday evening news conference, President Barack Obama said “I want to announce that the leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default – a default that would have had a devastating effect on our economy.”

A “deal” had been struck. House and Senate agreement secured, even some crossing of party lines had occurred. Yet, the generally non panicked behaviour of international markets in the contentious weeks prior seemed too imply that, despite the dire ponderings on “what if,” investors continued to believe that American politics would give way to American practical priorities, and the country would find a solution to its budget crisis. Markets in Asia and Europe surged the day after the President’s announcement; futures for the U.S. markets suggest rises; and Asian markets climbed.

Compromise, said the President, “will allow us to turn to the very important business of doing everything we can to create jobs, boost wages, and grow this economy faster than it’s currently growing. That’s what the American people sent us here to do.”

In Israel, finding a solution to that country’s economic woes may not be as simple. In the main, Americans did not take to the streets. In Israel, a tent city mushroomed in Tel Aviv; Saturday night protests brought more than 100,000 into the streets, increasing the intensity of the protests that began about two weeks ago.

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The ongoing housing crisis and sharp increases in prices of basic foods and commodities have forced Prime Minister Netanyahu to recognize the need “to alleviate Israelis’ economic burden.”  The Israeli daily Haaretz says “the government must remove the obstacles and expand the supply of housing in a way that the public can have faith in, and not as assets of nature and land valuable to all of us because of momentary political pressure.” At his weekly cabinet meeting, the Prime Minister said “We are all aware of the genuine hardship of the cost of living in Israel…we must deal with the genuine distress, seriously and responsibly.” he cautioned that measures must avoid “the situation of certain European countries, which are on the verge of bankruptcy and large-scale unemployment.”

Opposition leader Tzipi Livni, head of the Kadima Party, said “fixing what is happening on the streets,” she said, “has to be done through the Knesset.” According to Yediot Aharonot, the Israeli daily, the Bank of Israel, under Governor Prof. Stanley Fischer, “expects the politicians to show understanding for the distress – but also to take tough measures.”

In virtually the same time frame, disclosure of the conclusions of an October, 2010 internal report of the Office of Inspector General for the U.S. Department of State raised questions about the state of basic United States – Israeli cooperation and understanding. Said the report, American diplomats in Israel have “difficulty mustering support for the Obama administration’s policies.” It implied the embassy had failed completely in its PR efforts.

“A fragile Israeli coalition government leans toward the views of its members from the nationalist and religious right, creating a challenge for diplomats seeking to build support for U.S. policies,” the report says. The unclassified version was distributed in the State Department in March. The document, based on a two week long visit by the State Department’s Comptroller’s team noted “intense challenges, generated by Israel’s current government,” and indicates that the approximately $7 million public relations budget is not well spent “Much of the Israeli public is suspicious of U.S. efforts to promote negotiations aimed at establishing an independent Palestinian state…The lively and fractious press often misinterprets American policies.”

Politics are one thing.  Economics are another. The OIG team’s visit to Tel Aviv also investigated the American loan guarantee package (up to 9 billion dollars) granted in 2002 to assist Israel during its economic recession. According to the OIG, “the program has “accomplished its purpose – stabilizing Israel’s economy,” and suggests that “Planning should begin now for [the loan-guarantee program’s] orderly termination. The report notes that “Israel has been admitted to the Organization for Economic Cooperation and Development, an indication… (and) is now a modern, self-sufficient economy capable of supporting its citizens as an industrialized country.”

The original legislation providing the guarantees provided that the programs were slated to end by 2011. “There is no change in policy regarding American loan guarantees to Israel. The current loan guarantees – which I would like to stress has nothing to do with the current US budget since it does not allocate any funds to Israel directly – were originally set to expire at the end of 2011,” Israel’s Consul for Public Affairs in New York, Gil Lainer told the Algemeiner.

An Historic Overview:  Significant increases in aid to Israel was initiated under the Nixon Administration. Prior to this administration, the majority of the economic aid had been in the form of loans or credit sales. Since 1974, Israel has received nearly $50 billion in aid, including economic and military funding. In 1997 another $3 billion was granted, as was $80 million to fund refugee resettlement programs. In 1996, Congress also provided $100 million in anti-terrorism assistance.

In 1991 Israeli Prime Minister Yitzhak Shamir had requested $10 billion in U.S. loan guarantees. However, relations between the first Bush administration and Israel were strained; only after the ascendency of the Labor party in the 1992 election did U.S.- Israel relations improve, growing increasingly more positive following the signing of the Jordan-Israeli peace treaty and the September 28, 1995 Interim Agreement between Israel and the Palestinians. As part of the Camp David agreements, Israel also received $3 billion in special assistance. With the start of the Second Intifada in 2001 and the an economic meltdown in Israel, the U.S. provided $9 billion in conditional loan guarantees made available through 2011. The enhanced loan guarantee package was approved (which included punitive deductions for the construction of settlements) under the first George Bush – a president not considered especially favorable to Israel’s interests.

Asked by the Algemeiner about the political implications of the OIG report, Consul for Public Affairs in New York Gil Lainer confirmed that the end of the guarantees are “in accordance with the sunset clause in the original legislation.”

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