Baker Reportedly Making Progress on Resolving Loan Guarantees Issue

U.S. Secretary of State James Baker apparently has made progress here with Israeli leaders in removing the obstacles to the United States providing guarantees for billions of dollars in loans sought by Israel.

But it is apparently President Bush who will make the final decision about whether Israel gets the loan guarantees, which it hopes to use to help finance the absorption of hundreds of thousands of immigrants from the former Soviet Union.

The president is expected to announce an agreement on the loan package during Israeli Prime Minister Yitzhak Rabin’s upcoming visit to Bush’s vacation home in Kennebunkport, Maine.

That is the scenario that emerged here Monday evening from a session Baker held with Israel’s top political and economic leadership, which was largely devoted to discussion of the loan request and the general state of the Israeli economy.

Participating on the Israeli side were Rabin, Foreign Minister Shimon Peres, Finance Minister Avraham Shohat and the governor of the Bank of Israel, Jacob Frankel.

Later in the evening, Baker was to meet alone with Rabin for further and deeper discussion of the Middle East peace negotiations. On Tuesday, after breakfasting with Peres, the secretary was to fly out for the continuation of his Middle East trip, with stops in Jordan, Egypt, Syria and Saudi Arabia.

RABIN TO MEET WITH MUBARAK

Rabin, meanwhile, was to leave Tuesday for meetings in Cairo with Egyptian President Hosni Mubarak.

Speculation that Baker would join the two leaders was apparently unfounded. Both Israel and Egypt are anxious to underscore the importance of this visit, the first by an Israeli premier in six years.

A senior Israeli official pointed out that it was both significant and symbolic that the new premier’s first trip abroad should be to Egypt.

Baker’s meeting with Israeli political and economic leaders took place at the Prime Minister’s Office.

Speaking to reporters afterward, the secretary said the discussion focused on “the reordering of national priorities that the new government is undertaking,” the “reformation and revitalization of the economy of Israel,” and the importance that the United States attaches to the absorption of new immigrants by Israel.

He stressed Washington’s interest in closely observing Israeli economic developments in the context of the loan guarantees issue and the Israeli commitment to cut back on settlement building in the administered territories.

The Bush administration has made a settlement freeze a condition for receiving the loan guarantees, a proposition rejected by the previous Israeli government under Yitzhak Shamir.

Earlier Monday, Baker and his top aide Dennis Ross, who is director of the State Department’s policy planning staff, lunched alone with Rabin and Peres at the King David Hotel.

Observers here saw that event as something of a farewell, given the widespread speculation that Baker will quit his post and move over to Bush’s campaign headquarters for the duration of the presidential race.

It was not immediately clear whether the Israeli and American sides had reached full agreement on the extent of the settlement freeze that the Rabin government is proposing, and specifically whether Baker is comfortable with the distinction that Rabin draws between “political” and “security” settlements in the territories.

The Palestinians and other Arab delegations are trying to persuade the United States that this distinction is spurious. But there was no indication, after Baker met with a Palestinian delegation Monday, that they had succeeded in driving a wedge between Israel and the Americans on this issue.

Plainly, the discussions with Baker have been held here on the assumption that Israel will be getting some loan guarantees, though how much is still unclear.

Shohat was reported to have told the secretary that Israel needs guarantees for $2 billion this year and $2 billion next year, and that after that, it would reassess its needs in light of the pace of immigration then prevailing.

For their part, Baker and his aides were anxious to stress that the United States wants to see progress in economic reforms in Israel, including wide-scale privatization of government-owned or partly owned concerns.