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Israel's booming economy puts billions in US aid under spotlight

Ariel Schalit / AP

Israeli shop owners play backgammon in the Betzalel market in central Tel Aviv on Friday. A Bloomberg survey this week said the Israeli shekel was the strongest of 31 major currencies tracked over the last six months.

TEL AVIV, Israel -- Boosted by newly discovered natural resources, Israel is surging ahead economically – a success that is pushing the issue of the country's $3 billion in annual aid from the United States onto the agenda.

The country made its first intervention in the foreign currency market in almost two years Tuesday, buying $100 million to peg back the growing strength of its shekel.

A Bloomberg survey this week said the shekel was the strongest of 31 major currencies tracked over the last six months.

Last week, Israel passed another milestone, a potential gamechanger for its economy. Gas began to flow from gas fields off the coast. By 2015 Israel is expected to be fully energy independent, and may be a net exporter.

And there’s more good news: In this water-challenged region, Israel is well on the way to water independence. Its water desalination industry supplies up to 40 percent of the country’s demand for water, and another 40 percent comes from recycled water from domestic and commercial consumption. Israel reuses its water two to three times.

The boom may give a louder voice to calls for a reduction to the $3 billion worth of financial assistance Israel receives from the U.S. each year – especially in the Washington, where budget battles continue.

U.S. campaign groups such as Stop The Blank Check and the Council for the National Interest have long campaigned for the aid program to end, but Republican Sen. Rand Paul recently joined the debate by saying the U.S. could no longer afford to keep borrowing money and then handing it out to others.

"It will be harder to be a friend of Israel if we are out of money. It will be harder to defend Israel if we destroy our country in the process," Paul told the Jerusalem Institute for Market Studies, an Israeli think tank, in January.

'A political football'
That view is echoed by some in Israel, such as Naftali Bennett, a software tycoon and leader of the right-wing Jewish Home political party, who during the recent election campaign said the country needed to free itself from U.S. assistance.

“Our situation today is very different from what it was 20 and 30 years ago. Israel is much stronger, much wealthier, and we need to be independent,” he said.

Michael Koplow, program director of the Israel Institute, a Washington think tank, said: “Foreign aid is always a political football – even more so when it comes to Israel. There is no doubt American attention is focused on its own finances.”

However, he noted that 74 percent of the U.S. aid, which is meant for military and defense equipment, has to be spent with U.S. companies.

“Given that Israel is a reliable military spender, you would have to think the defense lobby is going to make sure this aid continues,” Koplow said.

Even those hostile to the aid think it unlikely that Israel’s prosperity will prompt a change.

“The money doesn’t help alleviate poverty in Israel now, so there is no reason why lack of poverty there would cause it to end,” said Robert Naiman, director of Just Foreign Policy.

Yossi Mekelberg, associate fellow of the Middle East and North Africa Program at the U.K.’s Chatham House think tank, said: “It would be a matter of national pride to be economically successful and independent, but providing financial support also gives some leverage with Israel.”

And Israel still has economic problems. Unemployment is relatively low at 6.3 per cent, but the gap between rich and poor is one of the highest of all developed countries, according to the OECD.

“I don’t think a natural gas boom is going to do much to change that,” observed Koplow.

That disparity swept Yair Lapid, an inexperienced but popular new politician, into the finance ministry earlier this year as part of Prime Minister Benjamin Netanyahu's ruling coalition. Most of his support came from the disillusioned middle class whose summer of protests in 2011 changed the country’s priorities from political to social issues.

Now Lapid, 49, has to make good on his election challenge, “Where’s the Money?”

Newspapers on Wednesday reported that Lapid had clashed with officials in his department who proposed increases to tuition fees for university students. Lapid responded on his Facebook page that “if students have to pay more I’ll go home and demonstrate against myself.”

And as the government searches for budgets to cut and taxes to raise, newspapers are full of reports that Israel’s richest man, Idan Ofer, has decided to relocate to London in order to avoid paying more taxes – a motive his associates deny.

He has become a juicy target for critics who have long claimed that the country’s handful of tycoons have been milking the country dry, leaving the poor to foot the bill.

The gap between rich and poor, and how strange this is for Israelis brought up on the kibbutz ethos of “we’re all equal,” was well illustrated by the proverbial taxi driver who told a reporter, “Israel has changed. We all used to wear sandals. If you were rich, you wore better sandals.” 

NBC News' Alastair Jamieson and Becky Bratu contributed to this report.


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