The influential Jerusalem Institute for Market Studies (JIMS) has published a study which argues that financial aid to Israel from the United States is a net loss for the country.According to the analysis every dollar of US aid costs Israel up to 1.4 dollars. Yarden Gazit, a JIMS analyst who wrote the paper, claims that ‘US aid is a net loss for Israel and Israel would be better off without it’. Gazit claims that the conditioning of three billion dollars of annual American aid to Israel on similar aid to Egypt, Jordan, Saudi Arabia and the Palestinians forces Israel to spend more than three billion dollars on defense to maintain the balance of power vis-a-vis other countries in the region.

The study notes another problem is that the actual value of the US aid is much less than 3 billion dollars. The US requires that 75% of the grant be spent in the US. ‘When someone receives vouchers worth 300 dollars valid only in a specific store, it is obvious that the vouchers are worth less than 300 dollars.With part of the amount, the person will purchase goods he could have bought elsewhere for a lower cost, and with another part he will buy goods he had not intended to buy. Similarly, the ‘buy US’ requirement causes Israel to buy defense products at a high price, sometimes even products Israel may not need.’

‘Israeli industry loses up to $750 million because of US Aid’

The Israeli defense sector is hurt in 4 ways by US aid.Firstly, according to JIMS, the Defense Ministry purchases US products even though Israeli industry is capable of producing cheaper products, which better fit the Israeli military demands with a loss to Israeli industry of between $600 and $750 million a year.

Secondly, the Defense Ministry often requires Israeli companies to purchase expensive raw materials in the US in order to use up available grant money. This raises the cost of the final products sold by Israeli industry and hurts its competitiveness in Israel and on the world market.

Thirdly, since the Israeli army purchases so much in the US, some locally produced defense products are not used by Israel’s own army. This hurts Israeli industry’s reputation on the international market and may cause a loss of sales.

Finally, Israeli industry loses valuable potential contracts because of US-imposed restrictions on Israeli defense exports.

JIMS also points out that the billions of dollars guaranteed to the defense establishment every year reduce its incentive to reform and economize. ‘Why should a politician or the head of a government ministry invest political capital in promoting efficiency and pro-growth reforms, when he can always turn to the Americans and ask for more aid, guarantees or more favorable conditions?’ asks Gazit.

JIMS forecasts that as a result of the economic crisis in the US and its ever-increasing budget deficits, along with the rise of new powers such as India and China, which are interested in Israeli products, the economic and strategic damage of US aid will increase in the coming years. JIMS recommends that the Israeli government initiate an end to US government grants.