U.S. Expected to Guarantee Loans for Israel, Despite Reservations

Despite budget constraints and concern about U.S. funds winding up in West Bank settlements, Israel and its supporters are confident that the Bush administration can be convinced to request millions of dollars in housing loan guarantees to Israel for the resettlement of Soviet Jews.

Israeli Finance Minister Shimon Peres requested $400 million in such guarantees last week in meetings with President Bush in New York and in later discussions with members of the House Appropriations subcommittee on foreign operations.

Peres described the plan as an effort to offset the costs of housing what Israel estimates will be an influx of 100,000 Soviet Jews over the next three to five years.

In the days following the request, however, administration officials and congressional leaders had two objections to the plan.

The first, stated Monday by Secretary of State James Baker, is that the United States would be hard-pressed to come up with $400 million in an atmosphere of fiscal restraint.

The second is that the United States, which opposes additional Israeli settlement of territories Israel captured in 1967, is concerned that housing will be built in those disputed areas for Soviet emigres.

“We remain opposed to settlements in the West Bank and also opposed to the use of U.S. aid for that purpose,” Marlin Fitzwater, the White House press secretary, said Monday.

‘WIN-WIN SITUATION’ FOR U.S.

Yet both Baker and Fitzwater indicated that the United States is “sympathetic” to Israel’s desire to resettle the Soviet emigres. And by Tuesday, sources say, the administration and begun to rethink its reluctance to request the loan guarantees.

As one Israeli Embassy official put it, “I think it is a win-win situation for the United States.”

Proponents of the plan are taking two tacks: that U.S. loan guarantees require no cash outlay and that the United States reserves the power of approval over any housing built with loans it guarantees.

To meet Peres’ request, the United States would not need to lift Gramm-Rudman budget reduction ceilings, they argue. Rather, the administration would only need to request that Congress lift the cap on credit available through the U.S. Agency for International Development or create an exception for Israel.

Currently, AID is authorized to extend $25 million in housing loan guarantees per country from a worldwide credit program of $125 million. That credit has already been committed.

In response to U.S. fears of a nation defaulting on loans, as restated Tuesday by State Department deputy spokesman Richard Boucher, activists will point to Israel’s untarnished record on meeting loan payments over the years.

That record includes a prior use of housing loan guarantees in the early 1970s, when AID extended some $100 million in guarantees to help Israel absorb a previous influx of Soviet immigrants, according to U.S. and Israeli officials.

“That program had been very successful,” said an AID official. The official also said he could recall no nation actually defaulting on a U.S.-guaranteed loan, although there are a number of nations “in arrears.”

U.S. WOULD CONTROL LOANS

On the settlement issue, proponents of the Peres plan say that AID would have ultimate approval of all housing programs undertaken with loans guaranteed by the U.S. government. They say that was the arrangement when AID guaranteed loans to Israel in the 1970s.

Still, Israel faces objections from some government officials and Arab nations that the money it is lent for development within the pre-1967 borders “frees up” cash for projects in the West Bank.

Peres reportedly told the House foreign operations subcommittee that Israeli Prime Minister Yitzhak Shamir’s Likud bloc is likely to continue its policy of building and subsidizing settlements in the West Bank.

But a pro-Israel activist said Tuesday that there is a “fundamental distinction” between what a country must do with U.S. approval and actions it takes in what it perceives as its own best interest.

The benefits available under U.S. guarantees are considerable. Countries to which the guarantees are extended must borrow from United States financial institutions and are charged the market rate.

Current interest rates of 9 to 10 percent are as much as 33 percent less than what Israel would receive were it to seek non-guaranteed loans.

But the $400 million still represents only a fraction of what Israel says it will need to absorb new immigrants, according to an official at the Israeli Embassy.

With 30,000 housing units needed at a cost of $65,000 per unit, Peres’ three-year plan foresee housing expenditures alone of $2 billion. An additional $1 billion in education, vocational training and other services is not included in the housing costs.

The Israeli government is expected to look toward its own budget and the largess of Diaspora Jews to make up the difference.

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