The General Accounting Office (GAO), often referred to as “the congressional watchdog agency,” began a full-scale investigation of US aid to Israel in early 1982, without any public announcement or official congressional sponsor. The report was completed in early 1983 and circulated to the relevant government agencies for comment, as is customary. These included the State and Defense Departments, the Agency for International Development (AID) and the Central Intelligence Agency. The Israeli Embassy also had the opportunity to review the text, on the grounds that some information had been obtained from classified Israeli sources.
The report finally released in late June was replete with extensive deletions, reportedly at the insistence of the State Department.  Within several weeks of the official release of the censored version, the American-Arab Anti-Discrimination Committee made available all but seven pages of an uncensored draft of the report which had been completed before April 1983.  A comparison of the two texts suggests that virtually all deletions were made not for purposes of security, but to remove any information or official opinion that could be cited to argue for reducing aid to Israel or questioning the virtues of the US-Israeli alliance. “State and DOD officials say,” according to one deleted sentence, “that it is not politically possible to submit to Congress, as an administration proposal, a lower FMS [Foreign Military Sales] figure for Israel than that for the previous year.” Those responsible for “sanitizing” this report obviously want to keep it that way.
The draft report, as it stands, represents the most factually complete account available of US aid to Israel. Quite apart from the matter of censorship, though, the ground rules for GAO procedure limit the capacity of its investigators to develop a fully coherent picture of US policy towards Israel: “Information relative to any threat assessment, Israel’s defense posture and the needs of Israeli armed forces were accepted from responsible US and Israeli officials without verification.” The size of the US aid program, along with Israel’s favored treatment, made it practically impossible for the GAO actually to audit the programs. With regard to FMS aid, Israel has been exempted from many reporting requirements on the grounds that the paperwork involved would represent an “undue burden.” Each of the 29,000 commercial military purchases made every year by Israel’s military procurement mission based in New York requires an export license; but “the philosophy at Munitions Control,” the GAO notes in a deletion, “is that there is little reason to refuse any export license for goods to Israel.” Israel’s Economic Support Funds (ESF), unlike the situation with every other recipient, are cash grants not tied to any specific projects; the result is that there is “no way to measure the precise effects” of these funds on Israel’s economy.
The general picture, though, can hardly be disguised. Israel “has been virtually operating a wartime economy since its establishment,” and in 1982 spent some 57 percent of its total budget on defense and debt servicing. US assistance funded 37 percent of the defense budget in 1982, while the cash transfers labeled “Economic Support” have been large enough to cover military debt repayments. Despite the generous 30-year repayment terms attached to Israel’s military loans (most other countries get 12 years), that debt is rapidly mounting, to $887 million in 1983 and a projected $1.1 billion in 1992. From this the GAO concludes that “a large projected financial gap will probably force the Israelis to press for additional US aid.” According to a deleted CIA opinion, Israel expects that the US will fund half of its defense budget in the future.
This projection provides one clue to the general thrust of the censorship of the report. With regard to differing US and Israeli perspectives on the seriousness of “the Arab threat,” we read in the published version that “the US supports Israeli plans for its force modernization, and agrees that there is an Arab threat to Israel.” The next sentence is deleted: “DOD officials believe that [the threat] is overemphasized at this time.” Lest some questions be raised about US aid levels to Israel, the published version deletes the view of “DOD officials at the working level” who “believe that Israel can ‘do with less’ than the proposed $1.7 billion FMS program. In fact, some DOD officials say that Israel could get by with $1 billion annually…and still maintain its superiority.” Figures not included in the “uncensored” edition of the report provide a Pentagon listing of all FMS deliveries to Israel.
Chapter three, “Israel’s Economy and US Assistance,” is relatively uncensored and quite interesting in its account of the various rationales for the high level of grants under the Economic Support Fund. The standard State Department pitch for funds to maintain “a modest rate of economic growth and management of Israel’s balance of payments problems” runs up against what the report calls “an increasing dilemma”: the munificent flow of funds, which amounted to nearly $6 billion between 1972 and 1982, in fact might “contribute to an overall increasing Israeli need for foreign currency.” The US Embassy in Tel Aviv (identified throughout the published report as “one source”) nevertheless argues that the existing high level must be maintained to “show an undiminished US support to Israel’s creditors.”
“The Bounds of Democracy”
Military expenditures and debt repayment, which account for nearly two thirds of government expenditures, cannot conceivably be reduced, according to the US Embassy. It seems that non-military savings are equally impossible to contemplate: “Israel believes that substantial austerity measures could tempt emigration from Israel and promote labor unrest.” These represent “the bounds which Israeli democracy imposes on measures restricting private consumption.” The draft version was even more pessimistic in its assessment of Israel’s economic prospects. It was presumably toned down so as not to alarm Israel’s creditors, the most important of whom happen to be the taxpayers of the United States. The GAO takes a skeptical view of Israeli claims that it can increase its exports sufficiently to reduce its overall deficit, since “all of the reductions projected to occur in its non-military deficit will be offset by increases in the country’s direct military imports.”
The study was conducted over a period that included the invasion of Lebanon, and not a few of the excisions concern this episode in US-Israeli relations. The draft reference to a “US belief that Israel had broken its assurances to the United States that it would not invade Beirut” was altered for publication to the more innocuous statement that “the United States had succeeded in obtaining a negotiated withdrawal of Israeli and PLO forces from Beirut.” On the question of the extent to which US aid directly financed the invasion of Lebanon, the report is both censored and internally inconsistent. The published version cites Israeli assurances that “the Lebanon campaign will not result in any increase in aid requested from the United States.” The next sentence is deleted: “However, there is a substantial foreign exchange component directly related to these activities which increases Israel’s balance of payments deficit.”
The published account reports this sum to be around $350 million in “indirect” foreign exchange costs to be financed by “private sources abroad” and “commercial borrowing.” This is contradicted by the observation—deleted, of course—that Economic Support Funds are “based on an analysis of total foreign exchange needs regardless of source.” Another deletion observes that “the increase of $50 million in Israel’s request for FMS reflects, at least in part, aid for the replenishment of ammunition stocks drawn down and tanks lost during the fighting in Lebanon,” and a deleted CIA opinion notes that “Israel may want to revise its procurement plans, particularly if they want to replace lost or damaged equipment.” Also deleted is a citation from a September 1982 US report on Israeli arms sales which noted that “the market for Israeli-produced equipment will be enhanced because its effectiveness in combat was demonstrated in Lebanon.”
Finally, the report includes a heavily censored chapter on “US-Israeli Cooperative Efforts in Defense Industrial Development and Trade.” The Embassy advocates “a determined US effort to help Israel increase its exports as a way of eventually reducing aid levels,” despite the State Department view that the aid levels are determined politically, with little or no reference to economic need or performance.
US commitments to Israel’s military industrial complex are codified in the Master Defense Development Data Exchange Agreement of December 22, 1970, and a Memorandum of Agreement (MOA) of March 19, 1979. The 1970 measure permits the exchange of information “important to the development of a full range of military systems including tanks, surveillance equipment, electronic warfare, air-to-air and air-to-surface weapons, and engineering.” By August 1982, 25 separate annexes (each covering a separate project) had been signed. Comparing the draft report to the published text, it appears that as many as six of these annexes may have been signed between July and August 1982, during the height of the Lebanon War. More figures deleted from the published report show that nearly every category of Israeli-produced weapons has a significant US input.
The 1979 MOA permits Israeli firms to compete in the Pentagon procurement market. One Pentagon official estimates that between 1979 and 1982, Israel sold the Defense Department and its contractors some $75 million in goods and services.  The published report deletes mention of a April 1981 agreement specifying that the US would purchase up $200 million worth of goods and services per year from Israeli military contractors. Also deleted is the determination of the Interagency Defense Task Force, established the same month to implement this commitment, that the United States could not procure, on a competitive basis, enough Israeli military equipment to achieve the $200 million goal. It recognized that achieving or even approaching this goal would first require a mix of initiatives and efforts to enhance the competitiveness of Israel’s defense industries. Some of the initiatives identified and under consideration were
- authorizing use of FMS credits for offshore procurement on a case-by-case basis to modernize Israeli plants and equipment;
- authorizing use of FMS credits for offshore procurement of Israel-produced equipment by Israeli defense forces and third countries;
- facilitating technical data packages/commercial data transfers;
- further expanding the list of items for DOD procurement under Annex B of the 1979 MOA;
- helping Israel create a defense marketing organization;
- developing more liberal technology transfer guidelines for Israel;
- facilitating industry-to-industry arrangements; and
- allowing Israel to sell back to the United States its obsolete and surplus equipment for possible third country transfer.
The draft report notes that despite the suspension of the Memorandum of Understanding of November 1981, which subsumed the April 1981 commitment, “the spirit and some activities of the Defense Trade Initiative are being implemented under the 1979 MOA” and that “the list of items for potential Defense procurement in Annex B was expanded and procurement activities continued.” 
Perhaps the most controversial aspect of this relationship within the US government concerns the decision allowing Israel to use FMS credits to purchase goods from Israeli as opposed to US contractors. The report warns, perhaps a bit late, that this could lead to “future requests to subsidize the maintenance of an expanded Israeli defense industrial capability.” In 1977, Israel received permission to apply $107 million in FMS credits to develop the Merkava tank as a “one-time exception,” and later requested an additional $50 million to expand production of the tank. Recently it has asked to use FMS funds to build its new jet fighter, the Lavi, “citing the tank as a precedent.” The GAO believes this permission may well be granted, although Defense officials consider the Lavi “an unwise use of Israeli defense funds.”
The degree and nature of the censorship of the report suggests that both the US and Israeli governments are extremely sensitive to US public awareness of the full character of what is a very expensive and deadly relationship. More than a few questions remain about the curious circumstances surrounding the appearance of this report. Why did the GAO undertake it in the first place, without the usual congressional sponsorship? Why was such heavy and transparently political censorship imposed on the public version? Given the controversial nature of the report and the political character of the deletions, it would have been reasonable to assume that most if not all of the deleted material would quickly find its way into the public record.
The most plausible explanation for the heavy censorship is that it represents a political favor to Israel at a time when the Reagan administration has been soliciting Israeli cooperation in Lebanon and, perhaps more importantly, in Central America. For instance, a recent Israeli decision to sell PLO weapons captured in Lebanon to Honduras for use by Nicaraguan counterrevolutionaries has been cited by US officials as one important factor in the improved state of US-Israeli relations.  By issuing the censored report, the US government allows Israel to tout an essentially critical examination of its aid relationship as a certification and endorsement of Israeli requests for still higher levels of funding. The American-Israel Public Affairs Committee (AIPAC) lost no time in waving the published, censored report as evidence that “the GAO does not question the need, level or terms of aid to Israel.” This is precisely what the report does question, but as long as Israeli military equipment and forces are available to serve US interests, from Lebanon to Zaire to Honduras, the necessary bills will be paid.
 Report by the Comptroller General of the United States, US Assistance to the State of Israel (Washington: General Accounting Office), GAO/ID-83-51, June 24, 1983.
 US Assistance to the State of Israel, uncensored draft report prepared by the staff of the US General Accounting Office.
 One prominent procurer was Richard Perle, now assistant secretary of defense for international security policy. Perle recommended in 1982 that the Army evaluate and consider buying mortars manufactured by the Israeli company, Soltam, Ltd. During the year prior to his Pentagon appointment, Perle had been paid more than $50,000 by the owners of Soltam to promote their products in the US military establishment. Details can be found in the New York Times, April 17, 1983.
 Concerning the November MOU, see MERIP Reports 105 (May 1982). For other details on the US-Israeli military relationship, see also MERIP Reports 90 (September 1980) and 112 (February 1983).
 The Reagan administration is under pressure to establish new lines of support to the anti-Sandinista movement in the face of Congressional threats to cut off US covert support. The commander of the Honduran armed forces examined the captured weapons earlier this year at a CIA training center in Virginia. Honduras will probably purchase these arms with its FMS funds. New York Times, July 21, 1983.