18. Memorandum From the Director of the Office of Management and Budget (McIntyre) to President Carter1

SUBJECT

  • U.S. Aid to the Middle East

As you prepare for the Camp David meeting with Prime Minister Begin and President Sadat, I believe you should bear in mind a growing predicament in our aid to the Middle East. On the one hand, you should continue to assure both Israel and Egypt that the levels of U.S. economic and military assistance will not be decreased or withheld as leverage in the peace negotiations. On the other hand, there is an increasing disparity between the customary levels of U.S. aid to the Middle East confrontation states and their actual needs for assistance.

Below are some of the facts that point up the increasing difficulty in justifying continued high levels of U.S. aid to the Middle East. I am not in this memorandum suggesting a reduction in those aid levels in 1980. But I do suggest that you should consider the need to begin creating a climate where appropriate reductions will be acceptable diplomatically to Israel and Egypt.

Total: U.S. aid to the four Middle East confrontation states totals $3.1 billion (see attached table), or 39% of all U.S. bilateral assistance in 1978.

Israel: At $1.8 billion per year, U.S. aid to Israel amounts to nearly $500 per capita. Israel’s balance-of-payments surplus is expected to be in the range of $800 million for both 1978 and 1979. This surplus allows Israel to increase its foreign exchange reserves (up 20% since 1976), retire short-term debt, and prepay medium- and long-term commercial debt. GNP growth, low since the 1973 war, is now expected to be in the 5–6% range in 1978 and to increase to 8% in 1979 and beyond. In addition, DOD and intelligence analyses indicate that the current level of Israeli military capabilities insures Israel’s security against any likely attack by Arab forces. Preliminary analysis as part of the fall budget process indicates that U.S. aid of $1 billion would be sufficient to meet Israeli needs.

[Page 51]—Although Egypt continues to have serious economic problems, its prospects have improved measurably since 1976, largely because of massive aid infusions from the U.S. and the Arab oil states. World Bank, IMF, and USG analyses all project a steady decrease in aid requirements in the future. While total new U.S. aid commitments have been running at about $1 billion annually, disbursements will reach $800 million in 1978 after two low years as the program gathered momentum. The “pipeline” of undisbursed AID prior commitments will thus be nearly $1 billion by the end of this fiscal year. It now appears that new AID supporting assistance of $600 million rather than the current level of $750 million, when combined with outlays from the pipeline and food aid ($200 million annually), will be sufficient to maintain flows of at least $1 billion through 1981 or 1982. This would more than meet your commitment to President Sadat to maintain aid levels (in disbursement terms) over the next few years. A continuation of new U.S. commitments at the 1979 level would likely permit the wealthy Arab oil producers to reduce their aid.

—Aid levels for Jordan and Syria are primarily determined by levels for Egypt and Israel. Nevertheless, both of these smaller confrontation states are sufficiently strong economically that they could withstand a reduction in U.S. aid in the context of an overall cut-back of aid to the Middle East.

The disparity between recipient needs and U.S. support levels in the Middle East could be particularly important in making 1980 budget decisions as we consider heavy demands for funds to meet U.S. security interests elsewhere in the world. To meet new demands for assistance to Africa (especially southern Africa), Portugal, Turkey, and Latin America, we expect State to recommend a 1980 security assistance program well in excess of the planning ceiling. This in turn will force difficult tradeoffs with other areas if overall budget objectives are to be met.

[Page 52]

Attachment

Table2

U.S. Aid to Middle EastConfrontation States, 1977–1979(in millions of dollars)

1977 1978 1979 est.
Israel
Security Supporting Assistance 785 785 785
FMS Credits 1,0003 1,0004 1,0005
PL 480 11 7 5
Housing Guarantees 25 25
Israel Total 1,821 1,817 1,790
Egypt
Security Supporting Assistance 699 750 750
PL 480 209 189 185
Military Training 0.2 0.4
Egypt Total 908 939 935
Jordan
Security Supporting Assistance 70 93 1436
FMS Credits 75 75 85
Military Assistance Program 55 55 45
Military Training 1 2 2
PL 480 9 6 5
Jordan Total 210 231 280
Syria
Security Supporting Assistance 80 80 90
PL 480 20 14 12
Syria Total 100 94 102
Grand Total 3,039 3,081 3,107
  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 52, Middle East: Camp David Cables and Memos, 8/16–31/78. Secret. A copy of the memorandum was sent to Brzezinski.
  2. Secret.
  3. 50% of repayments forgiven. [Footnote is in the original.]
  4. 50% of repayments forgiven. [Footnote is in the original.]
  5. 50% of repayments forgiven. [Footnote is in the original.]
  6. Includes Maqarin Dam project presented as a separate regional project. [Footnote is in the original.]