Israel Balks at Obama’s New 10-Year Aid Offer
Barbara Opall-Rome, Defense News, Jul 15 2016
TEL AVIV — Israeli industry is bracing for lost funding and layoffs as a result of a proposed $38b over 10 years US military aid package that rescinds Israel’s ability to convert a significant portion of grant dollars into shekels for local R&D and procurement. While Israel still hopes to prevail upon the White House to bump its top line closer to $40b over 10 years, government and industry sources hold little hope of Obama’s administration wavering on ‘Buy Pindostani’ demands. The proposed deal aims to follow the current $30b 10-yr MoU, which expires Oct 2017. In interviews, those sources say that Netanyahu has pretty much resigned himself to a new paradigm whereby all of Israel’s grant aid, with the exception of funds appropriated for missile defense and pre-agreed programs, will eventually be spent in Pindostan. As it now stands, an Israel-unique mechanism called “offshore procurement” (OSP) allows Israel to spend some 26.3% of its Foreign Military Financing (FMF) on local programs. Additionally, the Obama administration has allowed Israel in recent years to earmark some $40m/yr for fuel purchases. A Pindo source said:
Those dispensations in recent years have amounted to some $1.2b out of the $3.1b Israel receives annually being spent in Israel rather than in Pindostan. While Israel values the predictability of this arrangement, it is not the best use of finite assistance dollars. Between OSP and fuel purchases, Israel is using approximately $1.2b/yr, or 38.7% of its total FMF account, to directly support its domestic budget rather than to build on its arsenal of advanced Pindostani equipment.
Doug Bloomfield, a former legislative director of AIPAC, which helped craft the language that institutionalized the local spending allowance, said:
Under the proposed follow-on agreement, OSP will be phased out incrementally over some years, and not in one fell swoop, to allow Israel to adjust to the new reality. The OSP mechanism was conceived more than 30 years ago as a means of supporting the Lavi, an indigenous, heavily Pindosi-funded Israeli fighter program terminated in 1987. The whole point of OSP was to help subsidize the Lavi project. It was subject-specific. It was never intended to become the open-ended entitlement program it is today. At the time, Israel’s industry and its economy was a basket case. But now the rationale for OSP is anachronistic. Israel is among the world’s top defense exporters. It’s now a formidable competitor against Pindo industry. At a time of economic austerity at home and when the Thugs in Congress are cutting funding for food stamps, it doesn’t make sense to continue this specific benefit. Both countries will be much better off focusing on how to make security assistance to Israel much more effective in meeting mutual needs.
Yossi Weiss of Israel Aerospace Industries, Israel’s largest state-owned defense firm, characterized removal of OSP provisions as “dramatic.” Weiss said:
I don’t want to say catastrophic or fatalistic, but the only reason I’m not saying that is because there is continuous dialogue between the two governments. The bottom line in this is a cut of 26%, which turned into Israeli shekels is a big big issue for the Israeli industry. It might lead to layoffs and all kinds of implications that I cannot even foresee right now.
Susan Rice, Pindosi national security adviser, who is managing bilateral negotiations on the follow-on MoU, noted the AJC’s Global Forum in Washington last month:
We are continuing to discuss a new agreement that will guide Pindo military assistance to Israel through the next decade. Israel currently receives more than half of Pindostan’s entire foreign military assistance budget. Even in these days of belt-tightening, we are prepared to sign the single largest military assistance package with any country in Pindosi history. It would constitute a significant increase in support, and provide Israel the funding to update much of its fighter aircraft fleet, substantially enhance the mobility of its ground forces and continue to strengthen its missile defense capabilities.
While far short of initial Israeli expectations of up to $5b/yr over the next 10 years (initial hopes of $8b/yr for 10 yrs actually – RB), Israel’s finance minister and officers on the IDF General Staff have urged Netanyahu to accept Obama’s proposed package. At a party faction meeting last month, Finance Minister Moshe Kahlon characterized Obama’s offer as “positive and fair.” He told party cohorts that he “told the prime minister and defense minister” to “adopt the offer and put an end to this saga,” adding: “Our security services can get by with the current offer.” When asked last week if Netanyahu is moving closer to accepting the package, a senior security source replied:
As you know, the prime minister is listening only to himself (& Sara – RB).
Netanyahu has repeatedly stated his willingness to sign the deal, but “not at any price.” According to sources here and in Washington, the offer now stands at $3.8b/yr, which includes some $400m to be spent in Israel on cooperative missile defense and other pre-agreed upon joint programs, such as a new anti-tunnel initiative that could cost hundreds of millions of dollars in the coming decade.