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Baker Spells out U.S. Offer to Israel on Loan Guarantees

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Israel will try to “fine-tune” Secretary of State James Baker’s offer Monday to underwrite up to $10 billion in loans for immigrant resettlement, provided that the equivalent of what Israel spends on settlement-related activity in the administered territories is deducted from the total.

Michael Shiloh, deputy chief of mission at the Israeli Embassy here, said Israel wants to modify Baker’s proposal to lessen the deduction for Israeli settlement-related spending.

As far as Israel is concerned, the test for such a formula, he said, is “Does it leave you with anything after the deduction?”

Shiloh said there is no Israeli government figure that quantifies its spending in the territories.

But some experts estimate that Israel may spend as much as $1 billion a year on settlement-related activity.

Baker, testifying Monday before the House subcommittee on foreign appropriations, delivered a dead-on-arrival proposal to guarantee loans for Israel of “up to $2 billion for five years if there is a halt or an end to settlement activity.”

“We understand that the current government of Israel has a problem with that,” the secretary acknowledged. “They have their principles and their positions on policy, just as we have our principles and our positions on policy.”

The United States regards the Israeli settlements as an obstacle to peace. But the current Israeli government is government is ideologically committed to expanding settlements in the West Bank, which it regards as an integral part of the Land of Israel.

COST OF ROADS AND SEWERS INCLUDED

Recognizing this gap, Baker said the Bush administration would “support the provision of loan guarantees of some lesser amount if there was a halt or an end to new construction activity.”

In other words, Israel would be allowed to complete any housing construction already under way in the territories, as long as it did not initiate any new building.

Baker suggested that the cost of completing any housing construction that was begun by Jan. 1 might be deducted from the amount of loans guaranteed by the Untied States.

When pressed by members of the subcommittee, the secretary said such costs might include the clearing of land and the building of roads and sewers for settlements. But he said these points were still under negotiation with the Israelis.

Asked about Baker’s comments, Yosef Ben-Aharon, head of the Israeli delegation to the peace talks that resumed Monday, said he hoped a compromise could be reached that would not violate Israel’s principles or U.S. policy.

But Israel “will not capitulate on settlements, and we will not write off the loan guarantees,” vowed Ben-Aharon, who is also director general of the Israeli Prime Minister’s Office.

A pro-Israel lobbyist here, while objecting to Baker’s tough conditions, praised him nevertheless for raising “no question of Israel’s need” for the loans or of “America’s ability to do it.”

“People will probably remember the hard part of what (Baker) said, but people will not remember the good part,” the lobbyist said.

Baker told the panel the Bush administration “strongly supports the emigration of Soviet Jews,” as well as “the principle of absorption assistance to Israel to absorb those immigrants.”

FULL $10 BILLION MENTIONED

Observers pointed out that it was also the first time Baker had spoken publicly about underwriting up to $10 billion for Israel over five years, as Jerusalem originally requested last fall.

To the delight of pro-Israel activists, Baker defended Israel’s need for that amount, despite what he called a sharp decline in projected Soviet Jewish immigration to Israel over the next few years, given Israel’s troubled economy.

In addition, Baker “didn’t make a big deal about the risk factor,” which the lobbyist said would likely put to rest a lingering issue: that a large amount of taxpayer money would have to be set aside in the U.S. government budget each year to protect against any short-term Israeli failure to repay the loans.

The lobbyist predicted that the Israeli government would cover the amount needed to be set aside, which may be as much as 3 percent of the loan, or $300 million for all $10 billion. Israel’s ambassador to Washington, Zalman Shoval, has on many occasions said his government would be willing to do that.

Another matter that appears close to being clarified between the two governments are economic conditions on the guarantees. Economic questions were discussed here last week by the visiting governor of the central Bank of Israel, Jacob Frenkel, and Robert Zoellick, undersecretary of state for economic and agricultural affairs.

Back in Israel, Frenkel told reporters Monday that the United States would require a series of Israeli economic reforms. Top Israeli economic officials would draw up those reforms, and there would be an ongoing dialogue between Washington and Jerusalem to ensure that they were implemented, Frenkel said.

CONGRESSIONAL CLOCK TICKING

Shiloh, the deputy chief of mission here, said the loan guarantee issue is “not an economic problem; it’s a political problem.”

He said that “not only did Frenkel make his point but his point was very well received, that Israel has a very viable economy and (it) will be even more (viable) if it receives the guarantees.”

Baker appears to be moving swiftly to define the issue in a way that may make it more likely to meet Congress’ timetable for reviewing the Israeli request.

The 1992 foreign aid bill is being held up until March 31 to accommodate loan guarantee legislation. But should Israel and the United States not have agreed on the matter by that point, it becomes “far more difficult,” if not impossible, to get Congress to vote on the request this year, the pro-Israel lobbyist said.

That is because of not only the constraints of the legislative process but also the political reality that votes on foreign aid issues become increasingly unpalatable as the U.S. election year heats up.

(JTA correspondent David Landau in Jerusalem contributed to this report.)

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