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Israeli Treasury Has Fallback Plan in Case U.S. Balks at Loan Guarantees

Israel’s Treasury has prepared a contingency plan to pay for the absorption of Soviet immigrants in the event that Israel is unable to obtain U.S. government guarantees for $10 billion in commercial loans it is seeking.

Such a plan is “on the shelf,” Finance Minister Yitzhak Moda’i told reporters Tuesday. “We must prepare ourselves so that we won’t be surprised,” he said.

Moda’i made clear he believes the Bush administration’s decision on the guarantees will hinge on Israel’s cooperation in the peace process, including a freeze on settlement building in the administered territories.

His comments were not well received by the Prime Minister’s Office. Sources there accused the finance minister of needlessly establishing a linkage between the settlement drive and aliyah at a time when Israel is trying to convince the Americans that there is no connection.

Shamir has insisted in recent days that the two issue are unrelated. He said he could not conceive of the U.S. administration denying Israel humanitarian assistance because of what is primarily a political dispute.

But Moda’i’s remarks echoed the recent warning by Israel’s ambassador to the United States Zalman Shoval, that Israel could be forced by the Americans to choose between settlements and the loan guarantees.

Shoval offered his bleak assessment in a series of radio interviews from Washington last weekend, which angered Shamir and the settlement advocates.

Israel is expected to ask the United States in September to underwrite $10 billion in commercial loans over the next five years to help provide housing and other infrastructure for an anticipated 1 million Soviet olim.

SKEPTICISM FROM ECONOMISTS

The Bush administration has hinted strongly that its receptivity to Israel’s request would depend on Israel halting its settlement drive.

One of Israel’s best friends in Congress, Rep. Dante Fascell (D-Fla.), said Monday that if the administration did not support the loans, it would be “politically difficult” to get Congress to back them.

The contingency plan unveiled by Moda’i would put the financial burden mainly on Israelis. It calls for increased indirect taxes on goods and services, a further devaluation of the shekel, and reduced price subsidies, which would result in higher costs for transportation and basic foods and services.

But economists expressed doubt that Moda’i’s plan is adequate. They said the absorption of 1 million olim over five years would require over $20 billion, a sum unattainable without U.S. aid.

“There is no secret, practical economic program to absorb 1 million immigrants without American aid,” wrote Sever Plotzker, economic analyst of the Israeli daily Yediot Achronot. “Without the aid, we would have to close the gates of the country.”

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