First $2 Billion U.S. Loan Guarantee To Israel Signed Ever So Quietly

By Eugene Bird

There is a tradition, a sort of gentleman's agreement, that when the White House changes parties, the outgoing administration will try to do two things. First, take as much credit as possible for pushing through any programs or projects authorized on its watch which might be politically useful later on to its party. Second, the administration leaving office will make some attempt to deal with necessary matters it has avoided during an election year, and thus leave a reasonably clear deck for the new administration. After all, those departing hope to return in four years.

President George Bush's administration may have gotten things backward. By signing an agreement with Israel on Jan. 5 to deliver the first $2 billion of a projected $10 billion in loan guarantees, it may get "credit" for an action that will smell to high heaven four years from now. And by granting Israel even easier terms than those laid down by Congress, it may have reduced the Clinton administration's leverage to get Israel to make any of the concessions necessary to revive the moribund Middle East peace process.

Hapless Bush officials clearly knew something was very wrong with their own agreement. The text was not released, there was no signing ceremony, nor was there any attempt to find something nice to say about actually granting the guarantees which aroused so much controversy 18 months ago, and again 6 months later.

In fact, the entire transaction was handled as a non-event. One U.S. official solemnly explained to the Washington Report that it was so "highly sensitive that no one wants to talk about it."

Yet the outlines of the agreement seem apparent from the initial implementing legislation and the "contingency guidance" prepared for the State Department press spokesperson—meaning information to be used to answer direct questions but not to be volunteered.

The agreement carries out President Bush's pledge to newly elected Israeli Prime Minister Yitzhak Rabin at their meeting in Kennebunkport last August, which gave Congress a green light to pass enabling legislation. Following passage of the legislation in early October (see Washington Report of November 1992), Israel seems to have gained a lot of maneuvering room in the subsequent negotiations. Here are the apparent terms:

1. Israel is supposed to spend all of the funds within the Green Line of 1967, and spending of the funds in East Jerusalem will not be permitted. None of the funds, however, are tied to accomplishing specific projects. That makes it very easy for the Israelis to cheat, from the moment they secure the loans.

The agreement gives the maximum advantage to Israel.

Initially, according to one source, the administration was going to require that all $2 billion of this first year's loans be tied to specific projects to be carried out within Israel's pre-1967 borders. Indeed, the justifying memoranda given Congress by the government of Israel outlined specific projects in some detail. As signed, however, the agreement leaves Israel free to claim that any projects funded by the loans to promote "business activities" or "economic growth" are within the Green Line. In fact, the $2 billion will make up the estimated $2 billion deficit in Israel's official budget for the 1993 fiscal year, which is probably exactly how the Israelis planned to use the money from the time they started asking for it in 1991.

2. Because the money will not be used to finance housing for immigrants, as originally requested, but instead will pay the costs of resettling and absorbing immigrants, the terms of the guarantees provide complete freedom for Israel to use the loans to underwrite economic programs of virtually any description, no matter how socialist-oriented or discriminatory in practice. Nor will the loan guarantee agreement as signed require the Clinton administration to carry out the close monitoring called for in enabling legislation to ensure that the creaking Israeli economy moves toward privatization, in step with the rest of the world. Probably the same binational commission set up under Herbert Stein in 1985 to review the economic policy of Israel will be used again to "monitor" the economic policies.

Are Loans Viable?

Meanwhile, as Israel's friends in the Bush administration built in concession after concession, Israeli financial press sources in New York began to question how helpful the $2 billion loan for 1993 really will be in reviving the Israeli economy. "The cost is too great," said one Israeli correspondent.

At a suggested interest rate of 7.4 to 7.5 percent, plus costs of floating the bonds through underwriters now being selected, plus some $90 million in up-front fees, interest over the 30-year period will bring the total cost of the first $2 billion in loans to about $5.5 billion.

Interestingly, however, there is a 10 year grace period before principal starts being repaid. This means that if Israel defaults on the loans during or after the first 10 years, the U.S. taxpayer will bear the entire cost of repaying the principal.

The USAID Office of Housing and Urban Development negotiated the terms of the loan with two representatives of the Israeli Ministry of Finance. Since congressional sources confirm that, while the terms of the legislation were adhered to, the agreement gives the maximum advantage to Israel with absolutely no special safeguards that the money will be spent within the Green Line, it's little wonder that instead of "taking credit" for signing the Jan. 5 agreement, the Bush administration has done everything possible to hide its existence from the press.

U.S. and Israel Join Hands in Central Asian Development

If the first $2 billion installment of $10 billion in U.S. Loan guarantees to Israel was handled discreetly, another Israeli end-of-the-administration raid on U.S. economic aid funds was downright stealthy. It started with an initial $4 million from the U.S. to send Israeli technicians to largely Muslim areas of Central Asia. It was negotiated as a result of a request made by Israel during the first visit last July by Secretary of State James Baker III to the newly installed Rabin government.

The agreement, whose costs have only just begun, parallels work done by Israeli technicians but paid for by the U.S. in many parts of Africa in past decades. Most of those projects were halted abruptly by the African countries themselves when they broke diplomatic relations with Israel after the Six-Day War of June 1967. Afterward, some African countries complained that Israel had used the projects to provide cover for Mossad agents, who had penetrated their governments.

With that history, the new project seems singularly misguided. All of the countries to which the Israeli technicians would be sent are former Soviet Muslim republics. They already are feeling heavy pressure on their governments from Islamic radicals. Agreements involving the presence of Russian-speaking Israeli technicians inevitably will become the catalyst for fundamentalist agitation that could weaken or even topple moderate secular governments.

Oddly enough, U.S. government officials who refuse to be named have their own deep reservations about the program for totally different reasons. They feel that by using technicians and technologies from American rather than Israeli universities, the same work could be done for the Islamic republics at a lower cost to the U.S. taxpayer. The USAID project is in fact exporting potential U.S. jobs to Israel in order to create make-work jobs for Israeli immigrants from the former U.S.S.R.

The sensitivity of the joint U.S.-Israel projects in Central Asia, which would focus primarily on agriculture and public health, can be deduced from the carefully ambiguous wording of the announcement: "Many of these governments have given informal assurances that this joint effort would be welcome, in addition to bilateral U.S. technical assistance projects."

Stripped of diplomatic ambiguity, that can be read to mean that the Central Asian governments fear they might not get desperately needed USAID funds unless they accept unwanted Israeli technicians with them.

The Washington Report was unable to learn whether any of the governments concerned had actually agreed to accept the Israelis. The five states involved are Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan and Tajikistan. Because Tajikistan is in a state of civil war at this writing, Jewish residents are being airlifted in a special program to get them out of Tajikistan's capital of Dushanbe.

Only domestic politics and the political clout of the Israel lobby in Washington can explain the contradictions of the outgoing Bush administration's last two programs to channel massive taxpayer funding to Israel in addition to the annual $3 billion ($1.8 billion in military assistance and $1.2 billion in economic assistance). The loan guarantees are to encourage the outflow of Jewish emigrants from the former Soviet Republics to Israel by stimulating the Israeli economy enough to create jobs for them.

The USAID program is to send some right back again, newly equipped with Israeli passports, and provide U.S. funds to pay their salaries when they get there.

Both were promised to the Rabin government by the Bush administration last summer, partly to promote the Bush-Baker peace process but mostly in a futile attempt to buy a political truce from Israel's supporters in the U. S . media, and if possible attract Jewish votes and political contributions to the Bush campaign. Correspondent Thomas Friedman wrote recently in The New York Times that, in fact, 60 percent of the Clinton campaign's "non-institutional" funding came from pro-Israel Jewish contributors. Estimates in the weekly Jewish press on the percentage of Jews who voted for Clinton vary from 80 to 85 percent, with many of the remaining Jewish votes going to Ross Perot.

Despite efforts by the outgoing administration to hide the evidence of its last-minute maneuvers to appease the Israel lobby, the picture is clear. Israel boosted its level of U. S. economic and military aid past $6 billion for fiscal year 1993; Clinton got the pro-Israel media support, lobby money and votes; and the U.S. taxpayer got the bill.