Israel Asks for Loan Guarantees, but Some Worry About Conditions

Israel is seeking loan guarantees from the United States to compensate for the Jewish state’s economic crisis and the looming threat of U.S. military action against Iraq.

Israeli officials met Monday in Washington with the U.S. national security adviser, Condoleezza Rice, seeking up to $10 billion in loan guarantees and additional aid to compensate Israel for any damages if Baghdad lashes out at Israel in response to a U.S. attack on Iraq.

Dov Weisglass, Prime Minister Ariel Sharon’s bureau chief, and Ohad Marani, director general of Israel’s Finance Ministry, “presented a picture of the economic situation in Israel and, in its wake, a request for aid,” Sharon’s media adviser said. Talks are in their opening stages.

“No commitments were made to a specific level of assistance,” White House spokesman Ari Fleischer said of the meeting. “But we are cognizant of the economic conditions in Israel, and we want to work with Israeli authorities on this issue. And of course, any decision that would be made on this would be subject to congressional approval.”

The guarantees allow Israel to borrow money at a lower interest rate, and there is no cost to the United States if Israel repays its loan. Israel maintains that it has never defaulted on a loan.

But the issue is complex: Some Israel supporters are concerned that the United States will use the loan guarantees and aid package to pressure Israel for diplomatic concessions.

“It means that the administration, with a positive reaction for the request of the government of Israel, might ask a price for it,” Yaron Deckel, Washington bureau chief of Israel’s Channel One television, told a Brookings Institution forum on Monday. “The price could be in terms of political negotiations with the Palestinians or not reacting after an attack from Iraq. There is no gesture just for a gesture, including in international policy.”

On Dec. 20, the United States is expected to unveil a “road map” for Israeli-Palestinian peace that was crafted with America’s partners in the “Quartet” — the United Nations, European Union and Russia.

Among the concessions demanded of Israel are the dismantling of settlements and a pullback of troops from the West Bank and Gaza Strip to the positions they held before the Palestinian uprising began in September 2000.

The United States also is moving toward military action against Iraq, and is concerned about Israeli retaliation if Iraq launches missiles against Israel.

U.S. officials would like Israel to remain out of the conflict, fearing it may antagonize the Arab world.

“There’s always concerns about how issues can be used, and aid is always a leverage issue,” said Malcolm Hoenlein, executive vice chairman of the Conference of Presidents of Major American Jewish Organizations. “But there is no indication that they’re tying the aid to something else.”

However, Hoenlein said he would not be surprised if the United States did make the aid conditional on Israeli acquiescence to U.S. wishes.

The United States is likely to place some overt conditions on any aid it gives Israel — for example, that none of the funds be used to create or maintain settlements in the West Bank and Gaza Strip.

Under the first President Bush, for example, the United States refused to approve loan guarantees that the Likud government of Prime Minister Yitzhak Shamir wanted to help settle immigrants from the former Soviet Union. Bush, who was firmly opposed to Israeli settlements in the West Bank and Gaza Strip, feared that the loans would free up other funds for the settlements.

Bush ultimately approved the loan guarantees when Labor Party leader Yitzhak Rabin, who had a more conciliatory policy on settlements, became prime minister in 1992.

In the present reality, conditions on the aid may be less controversial.

“The Israeli side knows that when we’re using American money, none of the money is used over the Green Line,” the Israeli official said, referring to Israel’s pre-1967 border with the West Bank and Gaza Strip.

Israel also is hoping for compensation for damages it may incur if the United States goes to war against Iraq. The 1991 Gulf War against Iraq severely damaged the Israeli economy, both because of a drop in tourism and the amount of money that Israel had to devote to public safety.

The United States is interested in providing aid to countries that might be affected by a war with Iraq such as Jordan and Turkey.

“Israel does expect America will be helping us during this difficult period,” the Israeli official said. “We just can’t prejudge how.”

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