The Rising Cost of Peace

Both Egypt and Israel are beginning to feel the pinch

The dogs can go on barking--but they will not stop the caravan." So said Egypt's President Anwar Sadat last week, in a brave dismissal of critics within the Arab world who have denounced him as a traitor for signing a peace treaty with Israel. In fact, those "dogs" yapping at Sadat have plenty of bite. The truth is that the cost of peace for both Israel and Egypt is beginning to hurt in earnest.

Ostracized politically by 18 Arab countries that have broken off diplomatic relations with Cairo.* Egypt has been dealt a series of punishing economic blows and now faces the threat of more to come. First, Saudi Arabia appeared to renege on its year-old promise to buy 50 U.S. F-5 fighter planes for Egypt at a cost of $525 million. Then Saudi Arabia and Kuwait both threatened to withdraw their $1.6 billion in petrodollars from the Central Bank of Egypt.

Next, the Gulf Organization for the Development of Egypt, a consortium of oil-rich Persian Gulf states that philanthropically pumped $1.7 billion into Egypt last year, advised Cairo that it was scrapping all pending projects. Finally, the Arab Organization for Industrialization, which was set up in 1975 to produce everything from helmets to helicopters with Egyptian manpower and $1.4 billion in financing from Saudi Arabia, Qatar and the United Arab Emirates, abruptly halted its operations. As a result, 16,000 Egyptians stand to lose their jobs.

Egypt was also suspended from the Organization of Arab Petroleum Exporting Countries and will thus lose its shares in three inter-Arab companies with a total capital of $2.8 billion. Although it did not specify exactly when the decision would take effect, the Arab Civil Aviation Council voted to close Arab airspace to Egypt's national airline, EgyptAir, and ordered its 17 member airlines to suspend flights to Egypt.

Egyptian periodicals and films have been banned from almost all the boycotting countries. Even the World Tourism Organization, a loose association of governmental travel bureaus that develops package tours in the Middle East, abruptly moved its regional headquarters from Cairo to the Jordanian capital of Amman. Reminded of the longstanding Arab boycott against Israeli commercial interests, one U.S. businessman in Cairo concluded: "We're faced with a new Arab blacklist."

Officials in Cairo insist that the country will weather the boycott. To counter the possible withdrawal of Saudi and Kuwaiti petrodollars, for example, the Central Bank reportedly will refuse to pay up. To rescue at least some of the A.O.I, arms contracts, Cairo hoped to go ahead with independent Egyptian production of military Jeeps designed by American Motors and Swingfire antitank missiles manufactured under British license.

Mostly, Egypt has been banking on the $3 billion in aid it expects from the U.S., West Germany, Japan and the World Bank. Cairo officials insist that their country can remain solvent enough to maintain the huge food subsidies that are essential to Egypt's internal stability. "There is no chance we will face food riots like those of January 1977," a government economist said confidently. But with 30% inflation, a population explosion (2.58% annual birthrate) and limited foreign exchange, Egypt could still suffer severe economic damage from an intensified or even prolonged boycott.

The outsider who seemed to understand this best was Israeli Premier Menachem Begin. Last week he pointedly expressed his own concern for Sadat's "isolation" and said, "We should like to help President Sadat as much as we can." That offer was more striking in light of Begin's own peace-related problems: a major political row between his Likud coalition government and the Labor opposition and an angry split in his own Cabinet.

At issue was the precarious state of Israel's economy and the potential financial costs that the peace entails. As it withdraws from the Sinai Peninsula. in accordance with the peace treaty, Israel plans to relocate three airbases and other installations in the adjoining Negev desert at a cost of $4 billion over the next three years. The U.S. has promised to provide $3 billion--$2.2 billion in loans and $800 million in grants. Coming up with the remaining $1 billion will impose a fearsome new burden on Israel's economy, already reeling under a total foreign debt of $16.5 billion and 60% inflation.

Last week the government conceded that the cost of living for April had jumped a shocking 8.7%, more than 100% if projected over the entire year. The admission provoked howls of alarm that the country could be heading toward uncontrollable triple-digit inflation. Finance Minister Simha Ehrlich proposed a stringent plan to reduce inflation by 1981 to 40%, at best, by slashing $1.5 billion in government spending, including $650 million from the defense budget. At that, Defense Minister Ezer Weizman, who has been seeking a 40% increase to defend the narrower peacetime borders, angrily bolted from the Cabinet meeting. Opposition leaders demanded that Ehrlich resign, and Begin was forced to postpone the ministerial vote on the plan. Nor was that all. At week's end the mercurial Weizman also rapped Begin's proposed plan for Palestinian autonomy and threatened to quit the Israeli negotiating team.

The cost of peace for both countries thus appears to be higher than anyone had anticipated in either Cairo or Jerusalem--or Washington. "The hostility toward the treaty is more intense than I expected," admits Middle East Envoy Robert S Strauss. But optimists on both sides emphasized the hope that if peace goes forward successfully, the immense military budgets can eventually be reduced. "When we speak about the cost of peace," says an Israeli banking official, "we cannot forget the cost of war." For the present, the "caravan" of the peace process was still advancing: this weekend both Egypt's and Israel's beleaguered but determined leaders will meet to preside over Israel's withdrawal from the city of El Arish in the northern Sinai.

*Of the 22 members of the Arab League, only Oman, Sudan and Somalia still maintain embassies in Cairo and have not joined the boycott.

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