Introduction
The overall goal of U.S. assistance to Israel is to support the furtherance of peace in the Middle East, initiated at Camp David when Egypt and Israel signed the Peace Accords. The process moved forward with Israel's signing of the Declaration of Principles with the Palestinians on September 13, 1993 and the Interim Agreement on September 28, 1995, the Wye River Memorandum of October 23, 1998, and the signature of the Peace Treaty with the Jordanians on October 17, 1994. Israel remains the only country in the region with a fully democratic form of government.
Israel's economy has responded favorably in recent years to the restructuring imposed after the crises and hyperinflation of the mid-80's. Economic growth has averaged six percent since 1990, as the economy becomes increasingly sophisticated and technologically advanced. Despite this, the government still faces economic challenges associated with absorbing nearly 900,000 immigrants since 1989 in a country of only six million. In 1998, growth slowed to only 1.9%, implying a per capita decline in GDP of .5%, and unemployment grew to over 8.7%. Israel's political and economic stability, stressed by the recent absorption of vast numbers of immigrants, continues to be important in furthering the U.S. foreign policy objective of supporting the Middle East Peace Process.
Concurrently, the unanticipated and substantial expenditures associated with the implementation of the peace agreements with the Palestinians and Jordan have exacerbated Israel's domestic budget deficit. U.S. assistance provides Israel the funds it needs both to promote economic reforms and to carry out a domestic agenda that reinforces the government's peace process policy.
The Development Challenge
There has been some success by the Government (GOI) in stabilizing the economy of Israel, in spite of the massive inflow of immigrants, which has increased the population by about 18% since 1989. Since 1993, export competitiveness has improved, and inflation has been reduced. Expanding business investment and governmental infrastructure investment, coupled with sustained export growth, are projected to help Israel reach its gross domestic product growth rate potential of about five percent. In FY 1999, Congress began a reduction of the economic assistance earmark in recognition of this progress.
To strengthen the economy, more work is needed to liberalize and restructure the large public sector. Continued expenditure reductions and privatization of public sector enterprises are needed, but political obstacles remain.
Other Donors
The United States remains the largest bilateral donor.
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