A U.S. State Department delegation met with Israeli officials here this week to discuss the terms of the next $2 billion installment of the $10 billion package of U.S. loan guarantees to Israel.
An Israeli Foreign Ministry spokesman would confirm only that “close consultations” were being conducted in order “to fulfill the requirements of the loan guarantee legislation.”
But it is understood that part of what is being discussed is what penalties will be levied against Israel for government construction in the territories, which is precluded by the legislation. The penalties would take the form of deductions from the money allotted by the guarantees.
A Finance Ministry official said only that U.S. officials were here “collecting information” on the Israeli economy, such as its privatization process, immigrant absorption and the use of the loan guarantees.
He described this as a routine process in preparation for the next meeting of the countries’ joint economic development group.
Jacob Frenkel, governor of the Bank of Israel, said that according to the terms of the loan guarantee legislation, the money must be spent to aid immigrant absorption “through the promotion of investments and activities in the private sector.”
To this end, about $600 million will be used this year to finance government infrastructure investments, according to Frenkel. The rest, he said, will be allocated to “activities which encourage the private sector in its investmentrelated operations.”
Meanwhile, Prime Minister Yitzhak Rabin on Monday night argued that Israel continued to need the loan guarantees, despite the easing of the immigration flood the money was intended to support.
Rabin made the argument at a conference in Tel Aviv titled “What do you do with $10 billion?” and co-sponsored by the Ma’ariv newspaper and Bank Leumi.
Rabin said the money was still needed to secure foreign investment, a point reinforced by other speakers, including Frenkel and Treasury Director-General Aharon Fogel.
“The whole world now knows that Israel has a secure source willing to guarantee a massive amount of money,” said Rabin.
He emphasized that the bulk of the money will be invested in infrastructure.
Some economists at the conference argued that the Israeli economy is in fact being harmed by the guarantees, because they project an image of a dependent and vulnerable country. They also warned that cuts in U.S. aid were inevitable.
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