US cuts jeopardize Iron Dome, Arrow

The US budget cut could reduce aid to Israel by $729 million, including $429 million for anti-missile programs, Washington sources say.

The pending US budget sequester on March 1, 2013, is liable to reduce military aid to Israel by over $700 million in the 2013 fiscal year, pro-Israeli sources in Washington told "Globes". The cut includes a $250 million reduction in current aid, which is due to total $3.15 billion, and the possible loss of all financial aid for joint US-Israeli missile defense programs, amounting to $479 million, for a total of $729 million in reduced aid. In the best case, if the aid for anti-missile programs is only reduced, rather than eliminated, Israel will lose $300 million in aid.

The brutal budget axe set to land on the US economy in just over a week could reduce the Pentagon's budget by $500 billion, spread over ten years, and somewhat less for civilian programs. All federal government spending items will be cut. Only explicitly legislated spending, such as social security payments, Medicaid, and soldiers' salaries will be exempt from the sequester. Aid to Israel, as well as all other items included in the annual budget, is on the table.

The sequester, also known as the fiscal cliff 2, is the result of the deadlock in negotiations between the White House and Congress in 2011 to raise the US debt ceiling. The Republican majority in the House of Representatives is demanding draconian cuts in government spending in exchange for agreeing to raise the debt ceiling. They have threatened to vote against raising the debt ceiling if their demands are not met, even if this pushes the US toward insolvency and drives rating agencies to lower the US credit rating. The White House refuses to capitulate.

As a stop-gap measure, the administration and Republican legislators agreed that the sequester would come into effect on January 1, 2013. The automatic cut would allow no discretion is choosing which items to cut. Only a budget compromise acceptable to both the House and Senate can avert the automatic sequester, and both the White House and Congress assumed that House and Senate Democrats and Republicans would reach a deal because any compromise would be better than the alternative of the blind sequester. The slogan was: better to cut the budget with a scalpel than with the butcher's cleaver.

Instead, both sides dug in, even after the sequester date was pushed back to March 1. Republicans rejected the Democrats' proposals, and vice versa. The Democrats are accusing the Republicans of trying to undermine President Barack Obama, while the Republicans are complaining that the President is ignoring them. The result is that the prevailing opinion in Washington is that the sequester will take effect on March 1.

The sequester's impact on Israel

The sequester's impact on Israel is not completely clear, but a picture is emerging: if the sequester is implemented, as expected, current military aid to US for the current fiscal year will be cut by $240-260 million, depending on how the sequester is calculated. However, there is growing concern that US aid this year for Israel's anti-missile programs will not be reduced proportionately, but will be eliminated altogether. "So far as is known at this stage, the fate of the aid for missiles is not the fate of the current military aid," said a pro-Israeli source. "We have to hope that that won't be the final situation."

Israel is due to receive $211 million in US aid this year to procure more Iron Dome batteries, and $268 million for "current US-Israeli missile programs"; in other words, the Arrow anti-ballistic missile system, and David's Sling medium-range anti-missile interceptor. If the aid packages for missile systems is eliminated, and the reduction is current military aid is added, Israel will lose almost $750 million in US military aid in the 2013 fiscal year. If the budget cut for the missile programs is proportional, Israel will lose just over $300 million in military aid.

Pro-Israeli sources believe that this a foreboding situation for Israel, given developments in the Middle East, including the crumbling of Syria, the possibility that Hizbullah will obtain non-conventional arms, and Iran's efforts to accelerate its nuclear arms program.

Top officials in Israel's Ministry of Finance, Ministry of Foreign Affairs, and Ministry of Defense are drawing up a strategy for dealing with the problem. One source believes that Minister of Defense Ehud Barak's sudden visit to Washington, just after his previous visit, was related to the sequester. Until recently, Jerusalem believed that the Congressional Republicans and the White House would reach a last-minute budget compromise, and that Israel would avoid the budget axe, but this assessment was disproved a few days ago, when the Republican House leaders decided to go on recess.

Israel's friends in Congress are well aware of Israel's distress, but their hands are tied, said the pro-Israeli sources. The sequester allows no exceptions. Moreover, under the current political reality, members of Congress cannot be seen to act on behalf of another country when the sequester will devastate tens of millions of Americans.

According to "The New York Times", the sequester will result in the firing of 14,000 teachers, 4,000 air traffic controllers will be sent on forced leave every day causing aviation chaos, 125,000 families will face eviction because of the suspension in federal rent subsidies, and the military will have to postpone maintenance on 25 ships and 470 planes. Under these circumstances, no member of Congress will lift a finger to exempt Israel from the sequester. The rule is simple: My poor country comes first.

Published by Globes [online], Israel business news - www.globes-online.com - on February 20, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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