April/May 1992, Page 15

Congress

Loan Guarantees: "The Choice is Israel's"

By Dennis J. Wamsted

"The choice is Israel's."
-Secretary of State James Baker testifying before a House Appropriations Subcommittee, Feb. 25, 1992

Following many years of providing billions of dollars in aid with no strings attached, the U.S. administration finally forced Israel to choose between the two. Seeking $10 billion in loan guarantees from the U.S. government in addition to its basic annual aid package of better than $3 billion, Israel refused President Bush's demand that it stop all settlement activity in the occupied territories as one condition of receiving the guarantees.

Last-Minute Scramble

The denouement finally occurred in the first two weeks of March, despite an intensive round of discussions between the administration and two key senators, Patrick Leahy (D-VT) and Robert Kasten (R-WI), the chairman and ranking minority member of the Appropriations Committee's foreign operations subcommittee, which oversees the U.S. foreign aid program.

In an effort to get the money for Israel, despite increasingly negative signals from the Bush administration for the preceding seven months, the two crafted a compromise that essentially would have given Israel the full $10 billion over a five-year period. It would have subtracted between $200 million and $400 million from the first year's guarantees as a penalty for Israel's settlement activity in the West Bank. Further, Leahy and Kasten proposed approving only roughly $1 billion in guarantees this year, while giving the president the authority to disburse or withhold the remaining funds in the future.

Bush, who reportedly is determined that the settlements must be stopped before they derail the entire Middle East peace process, declined the compromise, and the deal collapsed.

After their last meeting with Bush, The Washington Post quoted Leahy as saying: "The parties are far apart. I wish they could come together. But right now, at this moment, I don't see how that is possible."

While the journalists reported the loan guarantees clinically dead, Israel's U.S. partisans turned out in force for one-on-one conversations with members of Congress at mid-month in hopes of bringing them back to life.

While in years past Congress might have challenged the president, such a showdown appears unlikely this year. Although unremitting media criticism has eroded President Bush's popularity since last fall, when he first asked Congress to postpone consideration of the loan guarantees, public opposition to foreign aid in general, and to the guarantees specifically, has climbed dramatically.

This public opposition undoubtedly convinced many members of Congress that the pro-Israel lobby no longer reigns supreme on Capitol Hill. Indeed, it is worth noting that at no time during the simmering, six-month-plus debate did Israel's congressional supporters even attempt to force the issue to a vote in either the House or Senate.

Public opposition from a number of key members of Congress also helped derail the loan guarantees. In particular, Sen. Robert Byrd (D-WV), the powerful chairman of the Senate Appropriations Committee, voiced strong reservations about the loan guarantee proposal. It also was questioned by influential House members, notably Majority Whip David Bonior (D-MI) and David Obey (D-WI), the chairman of the Appropriations panel that oversees foreign aid.

But it was Byrd's willingness to go public with his concerns that may have had the most influence. In late February, releasing a General Accounting Office report that he had requested last year, Byrd said what Israel's congressional partisans didn't want to hear: Regardless of any controls established by the U.S., once the money reaches the Israeli Treasury it is impossible to track. If the U.S. prohibited Israel from using the guarantees to underwrite settlements in the occupied territories, but did not insist that Israel stop all settlement building, access to the guarantees would free up other Israeli government funds to continue building settlements.

Unless Israel changes its settlement policy, Byrd said, any written assurances about how the money will be spent are nothing more than "an exercise in building a paper dam."

The GAO Report

The GAO review, conducted from September 1991 to January 1992, concluded that "The actual use of the foreign exchange (dollars) borrowed by Israel cannot be determined because money is fungible-funds made available through loan guarantees made other Israeli funds available for use as the Israeli government determined. The dollars were deposited with the Israeli Ministry of Finance and became commingled with other money, thus losing their separate identity."

While generally optimistic about Israel's ability to repay the first $400 million in loans guaranteed by the U.S., GAO suggested two actions to strengthen Israel's ability to repay the loans, and thereby reduce the risk to the U.S. government.

-First, before any disbursement of loan funds, U.S. members in the U.S.-Israeli Joint Economic Development Group should be required to certify that Israel has made satisfactory progress in implementing a number of needed structural reforms and is pursuing its long-term plan to encourage additional private sector employment.

-Second, require that at the disbursement of the guarantees, Israel either pay a fee to the U.S. Treasury at least equal to the loan loss reserve required by the Office of Management and Budget or put a similar amount in escrow at the U.S. Treasury.

Dennis J. Wamsted is a free-lance writer specializing in the U.S. Congress and Middle East affairs.

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