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Bush Wants to Forgive Egypt’s Debt; Israel May Ask for Similar Treatment

As President Bush asks Congress to forgive a $7 billion debt owed by Egypt to the United States, there is growing indication that Israel, too, will ask that its debt be forgiven by Washington.

White House spokesman Marlin Fitzwater officially announced Tuesday that Bush is recommending that Congress forgive the $7 billion Egypt owes for military purchases.

Egypt would still owe the United States some $6 billion for economic aid, Fitzwater said. He said the administration would study requests from Israel and other countries for similar treatment.

“But we don’t consider this a precedent for dealing with other debts,” the spokesman added. “We will consider every request on its merits.”

It could not be learned whether Israeli Foreign Minister David Levy would bring up the issue Wednesday, when he meets here with Secretary of State James Baker. Israeli sources said no official request for forgiveness of the debt had been made yet.

But in Israel, Finance Minister Yitzhak Moda’i said Monday that he would ask for the debt to be canceled when he meets with U.S. Treasury officials in Washington later this month. He will be coming here for the annual meeting of the International Monetary Fund.

Moda’i said Bush administration “definitely” should cancel the Israeli debt, which totals some $4.5 billion. “I don’t see how they can avoid it,” he said.

The finance minister explained that Egyptian aid has been linked with aid to Israel since the 1978 Camp David Accords. Israel receives $3 billion in economic and military aid, and Egypt $2.3 billion, making them the two largest recipients of U.S. foreign assistance.

ARMS DEAL NOT YET CONCLUDED

Israeli officials here said that two years ago, Israel refinanced part of its debt to the United States on the private market for a lower interest rate and now owes the private market some $5.5 billion. Ninety percent of this debt is guaranteed by the U.S. government.

The sources said Egypt was given the same opportunity to refinance its debt at the time, but refused in the belief that the debt would eventually be forgiven by the United States.

Fitzwater said the decision on Egypt was “stimulated in part by Egypt’s leadership in resisting Iraqi aggression” and the “unique strategic contribution of Egypt to the pursuit of peace and security in the Middle East.”

The move followed an announcement by the Bush administration last week that it planned an emergency sale of some $2.3 billion in sophisticated military equipment to Saudi Arabia, to bolster its defenses against an Iraqi attack.

Israel is also concerned about an Iraqi attack and is seeking additional military hardware from Washington, as well. David Ivry, director general of the Israeli Defense Ministry, discussed the matter here last week with State Department and Pentagon officials during an annual review of Israeli defense requirements.

But Israeli officials here stressed that no decision has yet been made on the contents of the proposed supplementary arms package, which reportedly could include F-15 and F-16 fighter planes, Patriot ground-to-air missiles, M-60 battle tanks and Apache anti-tank helicopters.

They said that the $1 billion figure cited Saturday by The New York Times as the possible value of the arms package was much higher than the figure being discussed.

One obstacle to both the arms sale and the debt forgiveness is the U.S. budget deficit, which the administration and Congress have been trying vainly to trim before the new fiscal year begins Oct. 1.

Fitzwater said Tuesday that forgiving the Egypt debt would add $750 million to the U.S. deficit, the amount Egypt pays back to the United States each year. Any other debt cancellations or increased military aid to Israel would have to be factored in any solution to the deficit problem.

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