Money Walks, Nobody Talks

By William E. Smith. Reported by Marsh Clark/Jerusalem and Philip Finnegan/Cairo

As Israel's economy falters, diplomacy stumbles to a halt

Former Secretary of State Henry Kissinger remarked during a speech in New York last week that Israel is suffering from such grave economic problems, and the Arabs from such profound divisions, that any significant progress in Middle East diplomacy is unlikely for the present. That sounded about right. Israel's new Prime Minister Shimon Peres is eager to discuss a thick file of diplomatic matters with President Reagan during a visit to Washington this week. But for Israel, which has a current annual inflation rate of around 400%, the most urgent problems at the moment are economic.

The country's foreign reserves dropped to $1.7 billion last week, meaning that Israel has enough foreign currency on hand to finance imports for just 40 days. Because of that outflow of funds, the government, in preparation for the Prime Minister's meeting with Reagan, imposed a six-month ban on the import of many luxury items, including cars, major appliances and liquor. The government also announced a cut (from $2,000 to $1,000) in the amount of foreign currency Israeli citizens can take with them when traveling abroad.

In the meantime, Peres was rebuffed in his initial efforts to improve Israel's relations with Egypt and Jordan. Egyptian President Hosni Mubarak rejected Peres' call for a summit meeting, saying that such a session should not be held until progress had been made on the withdrawal of Israeli forces from southern Lebanon and improving the living conditions of Palestinians in the occupied West Bank and Gaza Strip. Until he believes the two sides are in a position to make real headway on these issues, Mubarak is determined to avoid meaningless ceremonies. He even turned down an Israeli request that former Defense Minister Ezer Weizman, a good friend of the late President Anwar Sadat's, be allowed to visit Egypt in the hope of improving relations. Mubarak is said to have commented, "The days when Weizman could come to Egypt and ride a camel near the Pyramids are over. If he has something concrete, fine. If not, let him stay in Israel."

Mubarak is particularly anxious at the moment to avoid offending fellow Muslims both inside and outside his country. He was gladdened by the decision of Jordan's King Hussein two weeks ago to restore diplomatic relations with Egypt, and is hoping that other moderate Arab states will follow suit. At home, he has been trying to deal gently with domestic discontent, which erupted last week in riots over the rising price of food and other commodities, and with the continuing activities of Muslim fundamentalists. An Egyptian court handed down sentences in the case of 302 fundamentalists accused of conspiring to overthrow the government at the time of Sadat's assassination in October 1981, and the sentences were far milder than expected. Only 107 of the defendants were sentenced to prison, and of these only 16 were given life terms, which in Egypt actually means 25 years. The government was reportedly surprised by the court's leniency but quickly released the 174 prisoners who had been acquitted.

Mubarak was apparently trying to show the fundamentalist groups that he personally has nothing against them but was only enforcing the law.

In his effort to mend fences, Peres was also disappointed by the response of King Hussein, who described the Israeli offer of negotiations as "an exercise in subterfuge and deception." In addition, the King criticized the U.S. for "procrastination and hesitation. . . which gave Israel more reason to be obstinate." To some extent, Hussein was presumably trying to protect his flanks against attacks by the more radical Arab states, especially Syria and Libya, following the King's decision to re-establish ties with Egypt. But, as Jordanian Foreign Minister Taher Masri emphasized to TIME editors last week, Hussein is unhappy about the stalemate in the region and the refusal of the U.S. Congress earlier this year to sell Jordan the 1,613 hand-held Stinger antiaircraft missiles it had requested. Masri said that Jordan is discussing arms purchases with the Soviet Union, as well as France, Britain and Austria.

At the United Nations General Assembly in New York last week, the key Middle East issue was the withdrawal of Israeli forces from southern Lebanon. The Israelis insist they want to leave, and will do so as soon as the security of the border region can be assured. In his meetings with Reagan this week, Peres is expected to express Israel's desire for Syrian assurances that Palestine Liberation Organization guerrillas will not return to southern Lebanon after the Israelis have withdrawn.

Exactly who will maintain security in southern Lebanon after the Israeli pullout is still to be resolved. Both Israel and Lebanon have indicated that they would accept the 5,700-member United Nations force in the area in a continuing and perhaps expanded role. The Israelis also favor an assignment for their ally, the Army of Southern Lebanon, a predominantly Christian militia now headed by General Antoine Lahd. The Lebanese government, however, can hardly wait to see the last of that militia. In fact, Lebanon's Prime Minister Rashid Karami told TIME editors that he thinks the militia will simply "fade away" once the Israelis pull out.

When will that withdrawal occur? Most Israeli officials estimate that it could take place within six to nine months. Beyond that, of course, remains the question of whether an Israeli pullout would lead Syrian President Hafez Assad to withdraw the 40,000 of his own troops still in Lebanon, although he has said he would do so. Summarizing the situation with studied vagueness, U.S. Secretary of State George Shultz concluded last week: "There is a long way to go before we can get what we all would like to see there."

That is one of the few points on which all sides would agree.

With reporting by Marsh Clark/Jerusalem and Philip Finnegan/Cairo