ECONOMIC AND MILITARY AID

Countries of the Middle East are prominent both as recipients and donors of foreign assistance.

Israel, Egypt, Jordan, Syria, and Turkey are major long-term recipients of economic aid, but nearly every country in the region has, at one time or another, received economic and development aid as well as military assistance. These transfers have come in the form of grants and concessional loans for goods and services, for projects and programs, and for direct budgetary support. From the mid-1950s until 1991 the United States and the Soviet Union divided and sometimes shared the region's aid clients, providing most of the assistance to the region. France and Britain, along with other countries in the European community, have also been major benefactors, and in recent years Japan has provided direct assistance. Bilateral aid aside, many Middle East states have looked to regional and international lending institutions for financing.

In spite of suspicions about foreign interference, most governments in the region actively seek foreign aid in order to strengthen economies, improve technologies, and bolster military capabilities. The loans and grants are intended to overcome the constraints of insufficient capital investment resulting from limited savings and foreign exchange. Chronic domestic budget deficits—often traceable to generous consumer subsidies and heavy outlays for arms—help to create and perpetuate a dependence on foreign aid. Some governments in the region have become chronically dependent on these and other rental incomes.

Politics of Bilateral Aid

In the 1980s and 1990s major donors, especially the International Monetary Fund (IMF), the World Bank, and the United States government, pushed for liberal economic reforms in recipient countries, stressing export-led growth and expansion of the private sector at the expense of state-owned enterprises. Support for market-oriented economies is thought to enhance political pluralism and strengthen civil societies in the region. Increasingly, the United States and others have said that the promotion of democratic institutions and human rights is an objective in giving aid. Environmental and population concerns are also reflected in programs, and humanitarian assistance remains available in times of acute need. But strategic political objectives overshadow other motives. Donors seek to reward political friends or woo others by improving the ability of governments to realize the demands and fulfill the expectations of their elites and wider publics. Political expediency can lead to minimizing developmental objectives, waiving economic reforms, and ignoring democratic-rights violations. Emphasis on political criteria by the more important donors has, moreover, resulted in the lion's share of foreign aid going to middle-income countries rather than to the poorest, most needy ones.

U.S. economic aid obligated through the Economic Support Fund (ESF) is deemed specifically to be in the foreign-policy interests of the United States. Over the history of the program, aid to Israel and Egypt has dominated expenditures. With strategic concerns uppermost, regimes in Turkey, Jordan, and Morocco have also been amply rewarded. Proponents argue that U.S. economic and military aid to the Middle East contributes to cooperation and stability, and that it helped to thwart communist penetration into the region. Thus, U.S. policymakers have at various times actively discouraged direct or indirect assistance to Libya, South Yemen, Syria, Afghanistan, and Iraq, all of which have been at one time beholden for aid to the Soviet Union. More recently, efforts to prevent technological assistance to Iran have figured strongly in U.S. policy.

U.S. assistance to the Middle East advanced dramatically with the Arab–Israel War of 1973 and its aftermath. Israel was first resupplied militarily, and then helped to recover economically from the war. Egypt, which had been heavily dependent on the Soviet Union for aid, was supported in its decision to join the Western camp with promises of development, commodity, and military assistance. U.S. aid subsequently provided critical incentives for signing the Camp David Accords and a peace treaty. Since 1977, Israel and Egypt have received nearly 40 percent of all U.S. aid—more than $75 billion in total.

Egypt, with annual aid at roughly $2.1 billion, had by 2000 received more than $40 billion from the United States—in the last decade, mainly in the form of grants rather than repayable loans. As a reward for Egypt's helpful role in the 1991 Gulf War, the United States agreed to the cancellation of $7 billion of military debts. Jordan, after concluding a peace agreement with Israel in October 1994, also came in line for debt relief and a major increase in weapons aid from the United States.

Creditors to the region also include the wealth-ier, oil-exporting states of the Persian Gulf, most notably Saudi Arabia, Kuwait, and the United Arab Emirates. They have assisted the Yemen Arab Republic, Jordan, Sudan, Egypt, and Syria, among others, in filling their investment-resource gap and relieving budgetary pressures. Arab aid has also been designed to buy off potential enemies.

Economic Reform and Multilateral Aid

Politically motivated bilateral aid is less bound by stringent economic requirements than that set by the IMF and the World Bank. Middle East countries receiving aid from these multilateral-aid sources have been obliged to agree to comprehensive structural reforms of their economies in order to attain loans and to reschedule previous debts. These reforms may include the elimination of state subsidies and removal of other price distortions, reform of tax collection, reduction in imports, devaluation of currency, and unification of exchange rates—essentially deflationary policies aimed at greater adherence to free-market principles.

Demands for fiscal and monetary changes and revised development strategies have been widely resented and often resisted. Under pressure from the IMF and World Bank, governments that have accepted the conditions for aid have been forced to introduce economic reforms that bear down hardest on the least well-off in their societies. As a consequence, several countries in the region have had to contend with popular demonstrations against mandated changes. IMF austerity programs over the years have led to street violence in Egypt, Jordan, Tunisia, and Morocco, and contributed to antigovernment activities in Algeria and Sudan.

Among the regional multilateral-aid givers, the Arab Monetary Fund, the Islamic Development Bank, and the OPEC Fund for International Development are the most prominent. The Arab Monetary Fund assists members in balance-of-payments difficulties. Between 1978 and 2002 it lent $4.3 billion to Arab countries. The Islamic Development Bank offers interest-free loans (with a service fee), mainly for infrastructural financing, agricultural projects, and technical assistance, all of which are expected to have an impact on long-term social and economic development. Priority is given to the import of goods from other member countries of the bank. Major contributors to the bank are Saudi Arabia, Kuwait, and Libya. Loans have been made to several countries outside the region in Africa and Asia. The OPEC fund is a multilateral agency that seeks to reinforce financial cooperation between OPEC member countries and other developing countries. It provides concessional loans for balance-of-payments support, the implementation of development projects and programs, and technical assistance and research financing through grants. The OPEC fund, which has had recipients in Africa, Asia, and Latin America, gives priority to countries with the lowest income. Yet, with heavy debts of their own owing to the Gulf War and low oil prices, the bilateral and multilateral generosity of the once-cash-rich Arab states declined in the 1990s.

Foreign Military Aid

Foreign military credits and grants have greatly eased the burden of defense spending for many Middle East countries. The region is the largest arms market in developing countries, accounting for 56 percent of all agreements from 1990 to 1993. With an average of some 30 percent of government expenditures for the military, the Middle East ranked ahead of any other region. In terms of the percentage of gross domestic product devoted to arms expenditures over the last two decades, nine of the top twelve countries—Iraq, Israel, Jordan, Oman, Syria, Egypt, Libya, the Yemen Arab Republic, and the Yemen People's Democratic Republic—have been in the Middle East. Among the leading recipients of major conventional weapons in the last decade are Saudi Arabia, Turkey, Afghanistan, Syria, Israel, and Iran. The major suppliers of arms to the region were the United States, the Soviet Union, France, Britain, and China.

U.S. military sales have been based in large part on a loan program set up in 1975 under which the U.S. Treasury, bypassing the U.S. Congress, provides credits from a special fund at prevailing commercial interest rates. Since most commercial lenders are reluctant to finance weapons purchases, these credits represent a form of foreign assistance. Several countries in the Middle East also received some or all of their arms from the United States on concessionary-loan terms or as outright grants. Beneficiaries include Turkey, Morocco, and Jordan, but Egypt and Israel virtually monopolize the most favorable military-assistance programs. From 2001 to 2003 the United States extended to Middle East countries foreign military assistance worth $10.2 billion, nearly all of which went to Egypt and Israel. The annual value of Russian arms to the Middle East, having fallen to only $400 to $500 million in 1997 to 2001, had been running at more than $15 billion annually during the 1980s.

Effects of Foreign Aid

It is difficult to assess whether foreign aid has improved the lives and increased the security of most people in the Middle East. Bilateral- and multilateral-aid programs have brought visible infrastructural improvements throughout the region. They have also addressed humanitarian needs, especially in areas of armed conflict, and induced estimable health and social gains. In recent years, foreign advisers have succeeded in forcing national planners to rationalize strategies of economic growth and have promoted integration within the global economy. But foreign aid also has disappointed both recipient countries and their donors. Aid-giving countries and agencies have complained about the inefficiencies and domestic corruption that often accompany sponsored programs, and they doubt the will of national leaders to implement reforms fully. Critics point out that much foreign assistance never actually reaches those it was intended to help. The region has lagged behind most of the world in economic liberalization. Recipient-country industries and trade continue to be highly protected, and although donors applaud evidence of growing democratization in several Arab states, they are concerned about the likely political beneficiaries of free elections. Bilateral donors are also frequently left unsatisfied with the diplomatic cooperation they have extracted from policymakers in Middle East countries.

Aside from the political resentments it provokes, foreign aid is criticized by recipients for its failure to put development on a self-sustaining basis and for possible disincentive effects on domestic production. Although donors have made industrial growth and higher agricultural output high priorities, unemployment remains a serious problem, and appropriate technologies and training are sometimes withheld. Considerable foreign assistance for agriculture that began in the 1980s has neither paid off in terms of impressive export earnings nor greatly improved the capacity for food self-sufficiency in the region's less well-off countries. With the mandating of difficult economic reforms, foreign assistance is also seen as increasing inequities and exacerbating domestic class conflicts.

Most controversial is whether, by selling arms to the Middle East, the United States and other suppliers are reducing conflict by allowing countries to better protect themselves, or stimulating defense spending and a regional arms race. Investment of borrowed money and domestic savings in weapons programs may also come at the expense of efforts to deal with severe economic problems and address the welfare of citizens. Accumulated loans have created considerable national debt and a long-term drain on national treasuries. Even so, although the end of the Cold War and the outcomes of recent regional wars have changed some of the sources and character of military and economic assistance, the quest for and dependence on foreign aid is unlikely to diminish any time soon.

Some of the poorer states in the region have received large flows of finance from abroad that have been essential for their survival. These have come from oil-rich countries in the region and from outside the region. The classic "rentier state" state is Jordan; other significant recipients have been Egypt and Syria. Aid has been bilateral and multilateral, civilian and military. It has taken the form of loans, grants, and debt write-offs. Between 1973 and 1989, poorer states in the Arab world received $55 billion of interregional aid. This was made possible by the huge rise in oil income in the region. Political rents have been paid to help maintain the state and the regime. Often the two were the same, but with the rise of fundamentalism within Arab states, aid has been provided to governments in order to maintain them in power.

Foreign aid has fallen in value since the 1980s for several reasons. First, Arab oil wealth has declined, and so there was less to give. Second, it did not result in economic improvements in the recipient countries (or at least not on a scale that satisfied the donors) and was thus considered as wasted. Third, the decline of pan-Arabism led countries to go their own ways and be less interested in inter-Arab relations. Fourth, Western countries and multilateral bodies have tied aid to economic reforms, the success of which reduced the need for external assistance.

The share of aid given on a concessional basis to countries in the Middle East and North Africa was higher than anywhere else in the developing world. In 1999, 38 percent of long-term debt in the region was concessional, compared to 19 percent on average for developing countries. In Egypt it came to 86 percent; in Jordan, 54 percent; in Syria, 93 percent; and in Yemen, 92 percent. This was an indication of political favor.

See also International Debt Commission; International Monetary Fund; Russia and the Middle East; United States of America and the Middle East; World Bank.

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marvin g. weinbaum updated by paul rivlin