Pro-israel Think Tank Recommends That Israel Withdraw Loan Request

A conservative, pro-Israel think tank here is urging Israel to withdraw its request for U.S. guarantees covering $10 billion in loans needed for immigrant absorption.

The Heritage Foundation is recommending such a move for both economic and political reasons.

Policy analysts at the think tank argue that if Israel were to receive the loans, it would delay Jerusalem from making needed economic reforms.

The analysts also point out that by withdrawing the request, Israel would remove a means for President Bush and Secretary of State James Baker to pressure Israel on Jewish settlement in the West Bank and Gaza Strip.

A report released this week by Edward Hudgins, director of Heritage’s Center for International Economic Growth, and Joel Rosenberg, an analyst at the center, says the United States should refuse to guarantee the loans until Israel makes the economic changes needed to ensure the $10 billion will not be wasted.

They argue that for Israel to receive the guarantees, Jerusalem must “accelerate dramatically its long-promised but slow-moving reform of its economy by cutting its budget, reducing and reforming taxes, privatizing government-owned companies and deregulating extensively the private sector.”

Israel is seeking the U.S. guarantees in order to get better terms from private banks for the loans. But the Heritage report argues that the money would be wasted without reforms.

“Owing money directly to foreign banks, without the shield of a U.S. guarantee, moreover, could impose enough discipline on Israeli leaders to prompt economic reform,” they suggest.

Their arguments were rejected by officials at the Israeli Embassy here.

Amnon Neubach, the embassy’s minister for economic affairs, said Israel is in the process of reforming its economy, but in an evolutionary way.

Israel has been making the reforms “step by step,” in order not to increase unemployment, Neubach explained.

Those who want economic reforms in Israel should realize that without the U.S. loan guarantees, there will be an “acceleration of the government in the absorption process, welfare and economic system in Israel,” said Yoram Ettinger, minister for congressional affairs at the embassy.

But if the guarantees are provided, it will encourage the government to adopt a “hands-off” policy on the economy, since “funds will now be available for the private market in Israel,” Ettinger said.

While arguing that the United States cannot provide the guarantees until reforms are made, the Heritage analysts warn that a U.S. refusal “in the midst of the peace talks, would appear to punish Israel unfairly. Yet, to accede to the request in its current form,” they say, “also would be unfair to Israel and to American tax-payers.”

This is why the Heritage analysts urge Israel to withdraw its request as the best solution.

A withdrawal also would “remove pressure from Israel to compromise its negotiating position in its talks with the Arabs and deny Bush and Baker a lever to press Israel on the settlements in the occupied territories,” the analysts say.

“Israel should not allow its critics to hold it hostage over the loans.”