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June 07, 2003

Israel's debts put heat on Sharon

We too often ignore the eonomics when we ask Sharon and Israel to stand up against Bush demands.
THE chances of progress in the Middle East are cast so easily in terms of personalities it is easy to forget the overshadowing disaster of Israel's economy – and the fact this threat is now itself a force for peace.

Prime Minister Ariel Sharon admitted as much recently, saying in remarks that caused shock on several fronts: "The occupation . . . is bad for the Israeli economy."
His choice of the word occupation dominated the analysis of his comments. But the pointed reference to the economy, from a man so identified with Israel's security and politics, also made waves.

Israel has been in recession for nearly three straight years since the start of the Palestinian intifada, and its economic prospects are bleak on every front. Since September 2000, according to government figures, its gross domestic product has fallen by 3 per cent overall, and by 7 per cent per head of population.

In these conditions, the US is well aware of the extra value of its economic aid to Israel. In April, Congress gave an extra $US1 billion ($1.5 billion) grant for military assistance and $US9 billion in loan guarantees, on top of the normal $US2.7 billion in annual aid...The US reportedly made some of the guarantees – which Israel needs to repay government bonds and support the budget deficit – conditional on economic reforms.

Washington has also indicated it would take a dim view of Israel's continued large subsidies to Jewish settlements in the occupied West Bank. [...]It would be easy to overstate the role US economic leverage has had in bringing about the shift in Sharon's position. But has clearly played some part.

More significant is the recognition by Sharon, shown in his comment on occupation and in Netanyahu's budget, that the conflict with the Palestinians could squander Israel's economic success, and preventing this is an urgent need