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"Israel's Defense Budget: The Business Side of War,"

Tuesday, January 30, 2001

by Charmaine Seitz

Overview:

As the Palestinian uprising enters its fourth month, the climate in the Middle East is markedly altered from that of only last July. Palestinians and Israelis remain in open conflict, despite heightened efforts to slow violent exchanges as a stepping stone to a resumption of negotiations.

With the change in climate, Israel's defense budget has also undergone revision. While the 2001 budget was to include a decrease in military expenditures in line with last year's belt-tightening, recent events have had the Israeli military clamoring for a boost in spending. With dire predictions of war with Syria and considering the situation in the Occupied Territories, the defense establishment has wrangled another NIS 3 billion ($732 million) from the prime minister's office. In so doing, Israel has momentarily reversed a downward trend in defense expenditures and caused some Israelis to wonder if their defense officials are taking them for a ride.

Selling the Product of War:

This year was to be a great one from the point of view of the Israeli government, according to Gidion Eshet, economic correspondent at the Israeli daily Yediot Aharonot. There were to be few expenses in southern Lebanon considering the redeployment of the Israeli army from the area last summer. Moreover, predictions were for an agreement with the Palestinians, which would not only allow for less spending in the Occupied Territories, but would bring in a windfall in foreign aid to implement the expected accords. More money could then be spent on education, which in the 2000 budget was allotted NIS 26.9 billion ($6.6 billion). By comparison, in August the Israeli Finance Ministry said that military spending for this year would be NIS 37.5 billion ($8.9 billion). The defense budget was slated to increase, but at a lower rate than the Gross Domestic Product (GDP), in effect a decrease of NIS 750 million ($182.9 million).

The defense establishment quickly began railing against the scheduled decline. As early as August 6 (a month and a half before the outbreak of the intifada), defense officials asked for an additional NIS 1 billion ($244 million) to prepare for coming clashes with Palestinians. Speaking to the Knesset Foreign Relations and Defense Committee on September 5, Israel Defense Force (IDF) Chief of Staff Shaul Mofaz said that 'less budget means less defense. We need to study the implications of cuts in the [defense] budget and present them to the government.' The hardest hit program would be long term rearmament, although the size of standing forces, artillery ammunition stocks, and reserve activities would all be affected.

Despite the dire predictions, Israeli Prime Minister Ehud Barak rejected calls for an increase in the defense budget. The army quickly said that defense contracts doled out that year would have to be canceled. Over 17,000 jobs were in danger. On September 10, Ha'aretz correspondent Amir Oren wrote that projects for developing and procuring long range strategic weapons against a potential Iranian or Iraqi threat would have to be slashed.

On September 28, Likud leader Ariel Sharon made his infamous visit to the Haram al-Sharif mosque compound in Jerusalem with at least 1,000 guards. The next day, Palestinian protests against the visit were met with heavy Israeli force. After the tunnel incident of 1996, the Israeli army had incorporated snipers into each army unit. The day after Sharon's visit, targeted Israeli gunfire killed seven Palestinians, thus sparking the ongoing intifada.

With an uprising on its hands, the defense establishment's calls for a budget increase escalated. In early November, intelligence officials delivered an assessment to the cabinet that ministers described as 'frightening.' Syrian support of Hezbollah could lead to conflict on that front, Iran was agitating behind the scenes, and Iraq had moved forces to the Jordanian border. The core of the discussion, according to Yediot Aharonot, was an attempt to convince the finance minister to increase the defense budget by an additional NIS 750 million ($182.9 million).

An Industry Fighting to Grow:

Discussions over the amount of money Israel spends on defense are not new. Currently, Israel spends a ratio of nearly 9 percent its GDP on defense. By comparison, the United States spends only 3.2 percent, Canada 1.1 percent, and England 2.8 percent. This high percentage does not include the hidden budgetary items of the Israeli intelligence branches, as well as unbudgeted revenue from the sale of second hand arms to foreign countries. Critics say Israel is spending far too much money on defense at a time when Israel's army is unrivaled in the region, facing no nuclear threat.

There are still those who argue that Israel's declining defense budget is a sign of woeful unpreparedness. At least half of the current line item defense budget is spent on salaries, benefits, and pensions, at the same time that the real cost of buying arms has dramatically increased, writes Martin Sherman for the Center for Policy Research.

The topic of disagreement, however, does not see a lot of Israeli press. That is probably due to the dramatic decline in the defense budget since the 1980s. In 1984, for example, Israel was spending over 24 percent of its GDP on defense. Eshet says that the general decline in expenditures is why debates over how much the military spends today receive very little attention from most Israelis. The recent addition of NIS 3 billion ($731.7 million) is barely a drop in the bucket in a total budget of more than NIS 240 billion ($58.5 billion).

The U.S. Role:

There is no way to avoid the U.S. involvement in this discussion. Currently, the United States gives Israel $3 billion annually in line item foreign aid. Since 1998, however, the United States has altered the shape of that money in light of Israel's strong economy. Instead of giving $1.8 billion in military aid and $1.2 billion in civilian cash payments, the amount of defense aid has slowly increased in lieu of the cash payments. In 2001, for example, Israel will receive $2 billion in military aid.

Recently, Israeli correspondent Steve Rodan reported in Jane's Defense Weekly that the Clinton administration told Israel that it would not grant $450 million in special military aid if Israel continued to downgrade its own military budget. The source was an Israeli defense official. Even though the Israeli defense budget has gone up, however, it appears that the promise of $450 million is on hold.

A Piece of the Pie:

These things matter most to those in the minority fighting for a piece of the state pie. Not long ago, Barak published a plan to dole out NIS 4 billion ($975.6 million) over four years to Palestinian communities in Israel. After the participation of Palestinians citizens in the start of the uprising in which 13 of them were killed, Palestinians in Israel are angry. The Israeli government is trying to patch over these open wounds. But Eshet notes that NIS 4 billion over four years is not a lot of money, and Palestinians in Israel may feel that they are in competition with the defense establishment for any extra allotments.

It is not surprising that Palestinian Member of Knesset Azmi Bishara believes that the defense establishment has been making noises of war in order to inflate its budget. 'It is irresponsible and cynical,' he said. 'They could not convince the finance ministry to give more of the budget to the army, so they are raising the issue of war by leaking to the media the possibilities of a war with Syria.'

Bishara linked Israel's threats against Syria with the defense push for more money. 'Syria is not interested in war at all,' he said, and Israel's vocal threats and assessments of belligerency could be 'a self-fulfilling prophecy.'

Palestinians are not the only ones asking questions'particularly when Mofaz was heard complaining that he did not have enough bulletproof vests for the soldiers deployed in the West Bank and Gaza Strip. 'The chief of staff wasn't required to explain how it came about that despite the vast resources provided by the state to the army, the [IDF] lacks the equipment it needs to deal with the conflict in the territories,' wrote Reuven Pedatzur in Ha'aretz. 'As the army officers see it, these are precipitous times for lobbying, for pressuring politicians to hand out more money. Their calculation is right on the mark.'

Charmaine Seitz is Managing Editor of the Palestine Report. The above text may be used without permission but with proper attribution to the author and to Palestine Center. This Information Brief does not necessarily reflect the views of Palestine Center or The Jerusalem Fund.

This information first appeared in Information Brief No. 64, 30 January 2001.