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Baker Voices Economic Concerns About Loan Guarantees for Israel

February 7, 1992
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Before the United States approves guarantees for any or all of the $10 billion in loans requested by Israel, Washington will have to “consider the likelihood of repayment,” Secretary of State James Baker told Congress on Thursday.

Baker made the comment before the House Foreign Affairs Committee, after Rep. Benjamin Gilman (R-N.Y.) pointed out to Israel’s “excellent record of repayment” on its past U.S. debts.

In one of a series of apparent barbs at Israel, Baker said that argument is correct only “generally speaking, because we appropriate the money up here with which to repay ourselves.”

The secretary, who is scheduled to discuss the loan guarantee issue Friday with Israeli Ambassador Zalman Shoval, also told the lawmakers he expects the next round of bilateral Arab-Israeli peace talks to take place in Washington before the end of the month.

The U.S. guarantees are needed to help Israel borrow $10 billion from private banks over the next five years. The money would be used for immigrant absorption. Without the U.S. guarantees, Israel would be charged a higher interest rate and be subject to less favorable repayment terms.

An Israeli Embassy official said U.S. economic concerns about approving the guarantees are “fair and square, and expected when one deals with such requests” in the range of $10 billion.


But the official dismissed as “unfair” Baker’s assessment of how Israel repays its debts to the United States. The official pointed out that current U.S. appropriations for debt repayment cover loans that went to Israel’s “non-productive military sector” rather than its civilian economy.

Despite the rhetoric on Capitol Hill, economic concerns are not likely to be the major stumbling block to securing the loan guarantees. Expected U.S. conditions on Israeli settlement activity are likely to cause far more friction.

The embassy official said the United States is seeking a “delayed freeze” on settlements, allowing Israel to “grandfather in” settlements under construction, rather than asking for an immediate freeze, which would include stopping all current construction.

But both Israel and the American Jewish leadership have argued that such conditions are political and should not be linked to the humanitarian issue of immigrant resettlement.

Pressed on this subject by Rep. Stephen Solarz (D-N.Y.), Baker repeated his objection to having the loan money used directly or indirectly to further the settlements, adding that the administration feels this way not to placate the Arabs but because it is consistent with U.S. policy.

“If you want us to come forward here with significant additional assistance for Israel over and above the very substantial amounts of $3 to $4 billion that we grant every year anyway,” Baker said, “then please don’t ask us to do it under circumstances that would contravene the long-established policy of the United States of America. Please respect our policy views.”

The secretary was referring to the $3 billion annual U.S. grant in economic and military aid to Israel, plus the roughly $1 billion more in miscellaneous perks.

The Israeli Embassy official disputed Baker’s math, saying the Jewish state receives “not a dime above” the $3 billion.

Baker also argued that as much as he has complained about the Israeli settlements, he has pressed the Arab states, with equal vigor, to end their economic boycott of Israel. He cited his proposal last year that the Arabs end their boycott in exchange for an Israeli settlement freeze.

“We got endorsement of that from a number of Arab governments,” Baker said, citing Egypt and Saudi Arabia.

But “Israel turned it down flat; it said it’s not acceptable,” he said. “I don’t know whether that’s still a possibility or not, but it’s something that we have suggested.”

The Israeli official said it was wrong to equate the two issues. Just as President Bush demanded that Iraq withdraw from Kuwait before there be any negotiations, the Arabs should first end their state of war with Israel as exhibited by the boycott, the official argued.

Meanwhile, Baker said he was unaware of language in the State Department’s proposed 1993 budget seeking to eliminate two provisions of a law enacted last year. One prohibits U.S. government contracts with foreign firms complying with the Arab boycott; the other bans the issuance of passports for travel to “Israel only.”

The Israeli official said he was surprised by Baker’s remarks, since his deputy, Lawrence Eagleburger, sent a letter to Congress last year that raised “points of objection” to the law.

Meanwhile, Sen. Jesse Helms (R-N.C.), a longtime opponent of foreign aid, has now signed on to legislation authorizing the loan guarantees without linkage to the settlement issue. He is the 73rd senator to co-sponsor the bill, which was introduced last fall by Sens. Robert Kasten (R-Wis.) and Daniel Inouye (D-Hawaii).

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