Israel Wins U.S. Concessions on Loan Guarantees

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The Clinton administration has notified Congress that Israel will suffer a $60 million "settlement penalty" reduction from the $2 billion in loan guarantees Washington made available in October. In 1994, the administration exacted a $311.8 million penalty. For fiscal year (FY) 1993 the sum was $437 million. This year, the Clinton administration assessed Israel's expenditures on settlements during that year at $303 million, but then restored $243 million of the deducted amount to fully compensate Israel for costs incurred in its redeployment in the Gaza-Jericho regions.

Israel's minister of finance explained recently that the $303 million sum reflects routine non-construction-related expenses such as salaries of teachers, nurses, and other civil servants. During the foreseeable future, Israel's Treasury Ministry expects Israel's expenditures on settlement-related roads and infrastructure (not including expenditures relating to Israel's redeployment) in the occupied territories to be $200-$250 million annually.

The %10 billion program in U.S. loan guarantees, spread out in equal installments over 5 years, was initiated in 1992.  The guarantees were devised as a means of supporting Soviet immigration to Israel.  The economic rationale for the program, however, has always been less important than the politics driving it, so much so that the Rabin government was recently permitted to draw down the $10 billion over 6 years and to use the entire $4 billion annual load guarantee for FY 1996 and 1997 to guarantee the financing of its national budget deficit.  The decision can be seen as a vote of U.S. support for the Labor government as it heads into its campaign for reelection.

As in years past, U.S. calculations of Israel's settlement expenditures excluded all private Israeli investment in the territories.  Therefore, almost every housing project that is being built in settlements in East Jerusalem and throughout the West Bank by private construction companies now proceeds without any U.S. penalty.

The exclusion of "private construction" represents yet another retreat from principled U.S. opposition to continuing settlement--a retreat that permitted the Rabin government to continue building and settling at a pace rarely seen in almost three decades of occupation.

Compensating Israel for its expenditures on military redeployment resulting from negotiations with the Palestinian Authority has been the subject of extended debate throughout the last year between the State Department and Congressman Lee Hamilton (D-Ind.).  The former chairman of the House Foreign Affairs Committee argued that this offset arrangement weakened the legislation's original purpose--to demonstrate to Israel that there were costs to continuing settlement expansion.  (See Settlement Report, November 1994.)

This year, unlike last year, Hamilton was briefed in advance by Assistant Secretary of State Robert Pelletreau.  And this year, no hearings are scheduled by the Republican-controlled committee.

News of the decision on penalties was released during ceremonies marking the signing of the Oslo II accords.  According to one congressional staffer, critics like Hamilton "couldn't make a case.  It was not a time to be critical."