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     Too generous U.S. financial aid to Israel may be damaging
     that nation's economy by discouraging needed reform to
     "dinosaur socialist institutions." (Pipes Commentary 10/92)

<doctype>article
<author>Pipes, Daniel
<author>Peretz, Martin
<title>Bush, Clinton & the Jews: A Debate
<serial>Commentary
<date>October 1992
<vol>94
<num>4
<pages>15-19

<excerpt>
<loc>p16c2g7-p17c1g2

<quote>

     [Daniel Pipes:]

     The [Bush] administration can hardly be accused of
     penny-pinching with respect to Israel, or of adding
     unreasonable conditions. Every year, it unconditionally
     supported $3 billion in aid to Israel, much the highest
     per-capita aid to any country. In 1991 it also backed a
     $400-million supplement for housing and $650 million in cash
     for damages suffered during the Gulf War.

     All this said, doing <it>without</it> the loan guarantee
     probably would have served Israel's long-term interests. To
     absorb immigrants, the country needs growth, not aid. Yet by
     permitting Israeli politicians to defer the hard decisions,
     American handouts permit Israel's dinosaur socialist
     institutions to limp along. The prospect of no loan
     guarantee compelled the Israeli government to get serious
     about economic reforms, privatization in particular.
     Conversely, its granting may have unfortunate consequences.
     For example, those major corporations on the block for
     privatization--the telephone exchange, the state chemical
     manufacturer, the state shipping line--may now remain under
     government control.

     Israelis themselves, in a development with far-reaching
     implications, increasingly doubt the value of aid. Just a
     year ago this view was restricted to a small band of
     believers in the free market; now it echoes from all parts
     of the political spectrum. For example, David Boaz, a former
     state budget director, has openly aired his fears that the
     loan guarantee might foster an "easy money" atmosphere which
     could result in an expansion of government funding and
     subsidies. The economics editor of the daily paper,
     <it>Yediot Achronot</it>, has worried that it might turn
     into "a kind of opium"; feeling $10 billion richer, the
     government could allow difficult reforms to go
     unimplemented. An economic correspondent for another daily,
     <it>Ha'aretz</it>, has suggested that "now that we have [the
     funds], I don't think we should use them. It will cause more
     harm than good to the Israeli economy."

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