Senate Adopts Plan to Refinance Israel’s Outstanding Debt to U.S.

The Senate approved a foreign debt refinancing plan Friday that could save Israel $2 billion over two decades. But it must first pass the House and be signed into law by President Reagan.

In the same measure, which was agreed to by voice vote, the Senate decided to provide Israel with $1.8 billion in military assistance in fiscal year 1988, and Egypt with $1.3 billion. The total U.S. foreign military assistance for 1988 was set at $4.2 billion under the plan.

The debt plan, approved Dec. 3 by the Senate Appropriations Committee, affects all foreign aid recipients who are trying to pay off high-interest loans. Israel currently has the highest outstanding debt in high-interest loans, roughly $5.45 billion.

The plan is aimed at easing the debt burden of major U.S. allies to avert possible default. The main beneficiaries, Israel, Egypt and Turkey, have borrowed billions to buy arms and are now struggling to pay off their debts. A few years ago, Israel received emergency economic aid from the United States.

For Israel, the $2 billion in savings would come by allowing private banks to refinance Israel’s debt, which lies currently in high-interest loans. An additional $5 billion that Israel owes the United States would remain unaffected, since it already lies in low-interest loans.

The debt relief plan originated in the Senate Foreign Operations Subcommittee, where it was co-sponsored by Sen. Daniel Inouye (D-Hawaii), subcommittee chairman, and Sen. Robert Kasten (R-Wis.), the ranking Republican. In 1985, the two had unsuccessfully co-sponsored a plan to reduce the interest rate on Israel’s loans to 5 percent.

James Bond, minority clerk for the subcommittee, expects a battle on the debt provision this week in the House-Senate conference committee. While the House has approved identical military assistance to Israel, the House did not vote on the debt provision.

Rep. David Obey (D-Wis.), chairman of the House Foreign Operations Subcommittee is said to oppose the debt reduction measure.

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