Israelis Growing Pessimistic About Deal with U.s on Loans

Serious doubt is being expressed for the first time in official circles here that Israel will get the $10 billion in U.S. guaranteed loans it first requested last September to help absorb thousands of immigrants.

Although the United States from the outset refused to underwrite the loans as long as Israel pursued an aggressive settlement-building program in the territories it captured in 1967, a compromise deal was expected eventually to materialize.

Some ministers indeed remain optimistic, at least in public, that an acceptable formula will emerge from the continuing talks between Israel’s ambassador to Washington, Zalman Shoval, and U.S. Secretary of State James Baker.

But concern is growing in political circles here that the final U.S. answer will be No.

According to officials and observers alike, the gap between Prime Minister Yitzhak Shamir’s Likud government and the Bush administration is too wide to be bridged.

In public, most government officials are still sending out optimistic signals. They hint that the Cabinet is ready to scale down settlement-building, though not freeze it, in return for the U.S. guarantees, which would enable Israel to borrow $10 billion from banks on favorable terms.

Transportation Minister Moshe Katsav, recently back from talks in Washington and New York, told reporters after the weekly Cabinet meeting Sunday that the government might well cut back on building settlements in the West Bank and Gaza Strip, but “for economic reasons,” not in response to external political pressures.

Katsav’s remark seemed to be preparing the Israeli public, and Likud’s constituency in particular, for an Israeli retreat, camouflaged as a pragmatic move not linked to outside pressure.

DISPUTE OVER NUMBER OF UNITS

But Health Minister Ehud Olmert cast doubt on the entire undertaking when he told visiting leaders of the American Jewish Committee here Monday that he was “not optimistic” Israel would get the guarantees.

Olmert, an ally of Shamir’s, said the Likud government would never agree to U.S. terms,

The swing from optimism to pessimism seems to have begun after Shoval’s meeting with Baker last Friday, the second session the two have had on the loan guarantees.

Optimistic assessments grew out of Israel’s apparent realization that it would have to modify its settlement-building policy to get the loans. The settlements have been opposed by successive U.S. administrations as an obstacle to peace.

The deal said to have been offered by Baker would allow Israel to complete housing in the territories already begun, but would bar it from undertaking any new housing starts.

The problem is that Israel and the United States are at odds on the number of units already under construction Shoval reportedly told Baker last Friday that the number is 13,000.

Baker considers that number to be exaggerated. U.S. intelligence information leaked to the media this week indicates that fewer than 6,000 housing units are presently being built.

There is an even more significant gap between the two sides. Israel insists that it should not be penalized for completing housing units already under construction. The United States would deduct the cost of all further building from the amount of loan money it guarantees.

This linkage is intended to force Israel to choose between settlements and immigrant absorption in establishing national priorities, as Sen. Patrick Leahy (D-Vt.) himself pointed out Tuesday in an op-ed piece in The New York Times.

COULD SOON BE ‘DEAD FOR 1992′

Leahy, who chairs the Senate Appropriations subcommittee on foreign operations, warned that if the United States and Israel cannot reach agreement on a deal within two or three weeks, “loan guarantees will be dead for 1992.”

The loss of any U.S. assistance would be a severe blow to Shamir and his Likud bloc as they head into the June 23 elections.

Agreeing to the U.S. penalty, however, would confirm, in the eyes of hundreds of thousands of immigrants and other low-income Israelis, the Labor Party’s argument that Likud indulges its ideological commitment to the settlements at the expense of the needy sections of the population.

Likud, warming up for a divisive election campaign, hopes a deal can be worked out which Likud campaign managers could present to the electorate as a success, if not a perfect success.

But if Sen. Leahy’s vehemence on the subject is reflective of the American mood, and if the views of Likud hard-liners such as Ze’ev (Benny) Begin are typical of the mood in Israel, no compromise deal seems possible.

Leahy wrote in the Times: “Even as Israel is asking our help, it is expanding the construction of the settlements at an unprecedented speed; in so doing, it is ignoring the increasingly blunt criticism by the administration, which is determined to press the Middle East peace talks to a successful conclusion.

“Israel wants guarantees,” Leahy wrote, “without any conditions, to be used as it sees fit. But this won’t happen.”

No less decisive was Begin, who wrote on the same op-ed page: “We cannot and will not agree that America dictates basic Israeli government policy.”

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