U.S. Will Deduct $437 Million in Loans Because of Settlements

In a move that could embarrass the Israeli government at a sensitive time in relations with the Palestinians, the United States has decided to deduct $437 million from Israel’s next installment of U.S. loan guarantees because of Israeli settlement activity in the administered territories.

The U.S. loan guarantees to Israel, which total $10 billion over a five-year period, have been controversial from the start.

After a lengthy battle pitting the Bush administration against much of the American Jewish community, the United States last year started providing Israel with $2 billion annually in loan guarantees over a five-year period.

However, under terms of the arrangement worked out between the United States and Israel, the United States will deduct from each installment — beginning with this second one — the amount the two countries agree was spent on settlements in the territories during the previous year.

While Israel has agreed to that arrangement, it now appears to be concerned about the message a $437 million deduction will send just as it has concluded major agreements with both the Palestinians and Jordan.

Perhaps in response to this concern, the State Department did not officially announce the deduction and, when asked about it, stressed that it was not a new policy but an implementation of an existing agreement between the two countries.

The department said the U.S. government would provide Israel with up to $1.563 billion in loan guarantees for the 1994 fiscal year, which began Oct. 1.

Israeli officials here said Monday that more than half of the settlement spending consisted of commitments to settlements made by the previous Likud government that the current government was honoring.

The Israelis said the current Labor government is planning in the future to decrease the amount it spends on settlements, especially in the wake of the historic agreement it signed at the White House last month with the Palestine Liberation Organization.

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