Israel Begins to Contemplate How to Use American Loan Funds

Funds obtained from guaranteed loans that Israel soon hopes to receive from the United States will be kept separate from the general Treasury and will not be used to augment the budgets of various government ministries.

Senior government officials meeting Wednesday night decided that the funds would be deposited in a special account and would be used to cover foreign currency purchases for boosting investment in the business sector.

But some of the money will be invested in infrastructure, particularly new roads, sewage and water.

Bank of Israel Governor Jacob Frenkel said Israel does not intend to engage in a “blitz” of loan-taking throughout the world. It will be necessary to act very cautiously, according to real needs, to boost the economic activity, he said.

“One should not forget that loans must be returned,” he warned.

It is not yet clear how much money Israel will actually receive from the United States.

In Washington, the State Department said it would not disclose the terms of the U.S.-Israeli agreement worked out during Prime Minister Yitzhak Rabin’s visit to Maine this week until after President Bush completes his current consultation with congressional leaders.

But sources say that under the deal, any money that Israel spends on settlements in the territories will be deducted from the amount of loans guaranteed by the United States, beginning after the first year.

WILLING TO SET ASIDE 3.5 PERCENT

Yet to be determined is the thorny question of how to accommodate within this deductibility formula Rabin’s insistence that an exception be made for certain settlements he feels are vital to Israel’s security.

The talks in Maine also produced the understanding that Israel would pay a portion of the U.S. cost of guaranteeing the loans, but the amount apparently has not been finalized.

Sources say Israel has agreed to set aside 3.5 percent of the loan money for that purpose, or $70 million a year for five years. But U.S. budget officials estimate the cost will be between 7 and 9 percent, with the difference falling on the shoulders of U.S. taxpayers.

According to Treasury officials here, Israel will not begin to feel the impact of the loans and the overall shift in national priorities for two or three years. Only then will Israel enjoy a major growth in employment and production.

In fact, despite the infusion of loan money, the government is planning to introduce major cuts in the national budget, in such areas as defense, housing and social insurance.

Absorption Minister Yair Tsaban and Jewish Agency Chairman Simcha Dinitz are optimistic, though, that immigration from the republics of the former Soviet Union will pick up as a result of the loans.

Dinitz said that earlier estimates of 1 million immigrants over the next five years could once again be real.

Tsaban said he would push to have some of the loan money go toward beefing up the stipend given to new immigrants during their first year in Israel.

“In my view, such an allocation of funds would be an investment in human capital,” he said.

Another suggested use of the funds would be financial assistance to immigrant scientists, who suffer greatly in the present absorption process, much to the detriment of the Israeli economy.

But the Absorption Ministry has expressed concern that the American government might oppose use of the money for this purpose.

(Cynthia Mann of States News Service in Washington contributed to this report.)

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