Israel Gets U.S. Guarantee on Forced Loans for Weapons

A technical lapse in U.S. government financing has led to Israel privately borrowing $300 million in the United States with a federal guarantee for repayment, knowledgeable sources made known today. The borrowing was necessitated, the Jewish Telegraphic Agency was informed, by the inability of the Administration to make available to the Israel government by June 30 the $300 million in credits for Israeli military purchases in the current fiscal year authorized by Congress. The fiscal year ends Sunday.

Israel is eligible for U.S. guarantees under both the Foreign Military Sales Act and the Defense Appropriations Act. In previous years, the U.S. made the credits available to Israel through cash and bank loans. This was the means used to supply Israel with the sums of $300 million in fiscal years 1972 and 1973 and $500 million in fiscal 1971.

This year, however, the U.S. government was technically unable to provide the credit but under authorized legislation allowed Israel to enter into negotiations with private leaders to make the purchases for the military hardware prior to the June 30 deadline. Accordingly, Israel has borrowed the $300 million in the form of notes in denomination of $500,000 each. The transaction is being handled by the Wall Street investment bank of Loeb. Rhoades and Co. Among the 72 institutions that have subscribed to the issue, according to a report in New York, are the City of New York, the International Ladies Garment Workers Union and some insurance companies. The notes mature in 20 years and bear 9 3/4 percent interest per annum. The previous U.S. credits for military purchases matured in ten years at a much lower interest rate.

Sources here said that raising the funds in the current way placed an extra burden on the strained Israeli economy but with the fiscal year rushing to a close Israel had no choice but to enter the private markets three weeks ago. The sources said that the U.S. government probably will find a way in the fiscal year 1975 to compensate Israel for the additional burden of the high interest rate. According to information in New York, Israeli officials decided to arrange with Loeb. Rhoades for the private placement to avoid the even much higher lending rates currently charged by commercial banks with which Israel had done business in the past. (By Joseph Polakoff)

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