Following is a Web version of a document from USAID's 1997 Congressional Presentation. Please note that some formatting may have been lost in the automated conversion of the original file. This document is also available for download in its original WordPerfect 5.1 format.

FY 1997 Economic Support Fund: $1,200,000,000

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, and the signature of the Peace Treaty with the Jordanians on October 17, 1994. Israel remains the only fully democratic form of government in the region.

Israel's economy has responded favorably in recent years to the restructuring imposed after the crises and hyper- inflation of the mid-80's. Economic growth has averaged six percent since 1990, as the economy becomes increasingly sophisticated and technologically advanced. GDP growth n 1995 was about 6.8 percent and unemployment declined to 6.3 percent from 1992 levels of 11%. Despite this good news, however, the government still faces economic challenges associated with absorbing over 600,000 immigrants since 1989 in a country of only five million. Its political and economic stability, stressed by the recent absorption of vast numbers of immigrants, continues to be important in furthering U.S. foreign policy objectives in the Middle East.

Concurrently, the unanticipated and substantial expenditures associated with the implementation of the peace agreement 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 in stabilizing the economy of the Government of Israel (GOI) in spite of the massive inflow of immigrants which has increased the population by about two percent per annum. Since 1993, employment has risen, export competitiveness has improved, and inflation has been reduced. Expanding business investment and governmental infrastructure investment coupled with sustained export growth are projected to maintain the gross domestic product growth rate at about five percent.

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. Germany, France, the Netherlands and Switzerland are also major contributors.

FY 1997 Program.

The structure of the USAID program for Israel is atypical of other USAID assistance programs in that there is neither projectized assistance nor USAID staff in Israel for this program. Rather, the program supports the implementation of the historic Camp David accords and provides Israel with an annual cash transfer. Hence, there are no structured specific objectives.

Agency Goal: Encouraging Broad-Based Economic Growth ($1,200,000,000)

The fundamental USAID objective in Israel is to reduce Israel's balance-of-payment pressures as it continues to pursue the economic reforms required for financial stability and structural adjustments needed for rapid sustainable growth. Though the U.S. cash transfer is not conditioned on economic policy reform, the ongoing U.S. State Department-chaired Joint Economic Development Group encourages Israeli reforms to reduce government spendingand deficits, to improve tax and public wage structures, to increase privatization, to reform labor markets and to continue to liberalize its trade regime. The cash transfer is used by Israel primarily for repayment of debt to the United States, including Foreign Military Sales debt, and purchases of goods and services from the United States.

By supporting and maintaining the peace process, the program encourages more investment and economic activity, thereby contributing to increased foreign exchange earnings. The GOI's resultant ability to forge new relationships with its neighbors provides further stimulus for exporting goods. Eased border crossings, another result of the peace process, also promise new sources of tourists and export markets.

	Encouraging Economic Growth	Stabilizing Population Growth	Protecting the Environment	Building Democracy	Total
USAID Strategic Objective
1. Support policy reforms required for financial stability and structural adjustments needed for rapid sustainable growth	$1,200,000,000				$1,200,000,000
Cross-cutting Issues:
Democracy/ Governance
Total	$1,200,000,000				$1,200,000,000

Office of Middle East Affairs Director: Philip-Michael Gary

PROGRAM: Israel
TITLE AND NUMBER: Israel Cash Transfer. 271-K636
STATUS: New
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1997: $1,200,000,000
INITIAL OBLIGATION: FY 1997 ESTIMATED COMPLETION DATE: FY 1997

Purpose: To support policy reforms required for financial stability and structural adjustments needed for rapid sustainable growth.

Background: 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. Israel remains the only fully democratic form of government in the region. Its political and economic stability, stressed by the recent absorption of vast numbers of immigrants, continues to be important in furthering U.S. foreign policy objectives in the Middle East.

USAID Role and Achievements to Date: The fundamental USAID objective in Israel is to reduce Israel's balance-of- payment pressures as it continues to pursue the economic reforms required for financial stability and structural adjustments needed for rapid sustainable growth. Though the U.S. cash transfer is not conditioned on economic policy reform, the ongoing U.S. State Department-chaired, Joint Economic Development Group encourages Israeli reforms to reduce government spending and deficits, improve tax and public wage structures, increase privatization, reform labor markets and continue to liberalize its trade regime.

Description: The cash transfer is used by Israel primarily for repayment of debt to the United States, including Foreign Military Sales debt, and purchases of goods and services from the United States.

Host Country and Other Donors: The United States remains the largest bilateral donor. Germany, France, the Netherlands and Switzerland are also major contributors.

Beneficiaries: The Government of Israel is the primary beneficiary.

Principal Contractors, Grantees, or Agencies: The transfer is accomplished by a direct grant to the Government of Israel.

Major Results Indicators: By supporting and maintaining the peace process, the program encourages more investment and economic activity, thereby resulting in increased foreign exchange earnings., The GOI's resultant ability to forge new relationships with its neighbors provides further stimulus for exporting goods. Eased border crossings, another result of the peace process, also promise new sources of tourists and export markets.