Senior figures in the defense establishment and the defense industries called for a change in the way US military aid to Israel is used. Their main concern is Israeli dependence on US money and the loss of know-how and capabilities to develop weapons systems.
A discussion took place on the matter at a closed conference of the Economics and National Security Program of the Institute for National Security Studies (INSS) in Tel Aviv. Senior defense establishment figures and heads of the large defense companies took part. The conference was led by Brig. Gen. (res.) Dr. Sason Hadad, a former financial adviser to the IDF chief of staff and head of the Ministry of Defense budget department.
Commenting on the aid money issue, a senior defense source who took part in the discussion said, "In a long-term perspective, the aid format should be reconsidered, because in contrast to previous years, Israel and its economy are currently in a good situation, and the country is capable of managing its affairs and paying its own way." The source added, "In the long term, under the current agreement between the two countries, Israel will lose its R&D and its industries."
The source went on to say, "From our point of view, the US aid money should be aimed at procuring tools that Israel lacks, such as airplanes and things that Israel is unable or unwilling to make. Aid money has become an additional budget source for us, however, and this is making us buy things from the US that the aid was not meant for. Israel is buying trucks from the US at a time when we use the European standard. If we need airplanes or main platforms, it is right to use the aid money. These things should depend only on us."
Another defense establishment figure said that Israel should prepare now for what he called, "weaning Israel from US money." He explained that US aid money made Israel politically and militarily dependent on the US. "There is no problem about taking Israeli money and using it to buy what we want in the US. Israel can increase its defense budget for this. It can take 1-1.5% more of GDP. This is a price that the country can afford to pay in order to avoid dependence on anyone."
Any change in the format of use of US military aid can take place only near the end of the next decade. The recent aid agreement with the US, signed towards the end of former President Obama's term, came into effect only this year.
The current agreement, which will be in effect until 2028, increases annual US aid for Israeli defense procurement from $3.1 billion to $3.8 billion. In contrast to the previous agreement, however, starting in the coming years, the new agreement denies Israel the option of converting a quarter of the aid money from dollars to shekels. This means that the money cannot be used to procure weapons and systems from the local defense industries. This clause was designed to strengthen US defense industries, because the elimination of the conversion option means that Israel will have to use all of the US aid for procurement from US companies.
Participants in the conference heard a review of the defense industries operating in Israel's outlying areas. A research source said that most of the defense enterprises operating in the outlying areas are production oriented, while the knowledge-oriented enterprises are in the central region. He attributed this to a severe shortage of engineers and professional personnel. "We thought that the outlying areas were an asset because land for building plants was cheap and personnel was inexpensive, but it turned out to be a burden, because trained personnel is unavailable. The problem is most severe in the metal sector because of a shortage of machine operators. The industry is already concerned about the planned transfer of the IDF's rehabilitation and maintenance centers from central to northern Israel, because they will be left without professional workers," the source said.
At the same time, a senior defense industry source yesterday warned against using US aid to pay for research and development programs and development of future weapons systems. "The US won't let us export a single screw. We have to be careful about this situation," he said.
Given the concern about challenges to the defense industries in the coming years posed by the changes in the aid agreement, growing competition in the fields in which the industries operate, and demands by customers all over the world to move production and know-how to other countries, defense industry sources called on the Ministry of Defense to create tools for easing their plight, while expanding defense deals between countries; to make defense exports easier; and to increase the defense budget - an issue that will in any case be on the next government's agenda.
Published by Globes, Israel business news - en.globes.co.il - on April 3, 2019
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