Washington Report on Middle East Affairs, February 1992, Page 7, 85

Special Report

The Case Against Unconditional US Loan Guarantees for Shamir's Israel

By Richard H. Curtiss

"Shamir is. . . sacrificing badly needed political capital abroad. The loan guarantees are just the tip of the iceberg. Pro-Israel lobbyists and congressional sources are becoming increasingly worried about the viability of the annual $3 billion military and economic aid package for Israel. . . For the first time, aid and political policy may be linked." -Former AIPAC official Douglas Bloomfield, Washington Jewish Week, Jan. 9, 1992

After President George Bush asked Congress to delay for 120 days considering Israel's request for the US to guarantee repayment of $10 billion to be borrowed by the Israeli government from commercial lenders, an ABC/Newsweek poll showed an overwhelming 86 percent of the American public supported him. Senators Robert Kasten (R-WI) and Daniel Inouye (D-HI) accordingly withdrew their amendment providing the guarantees, at the rate of $2 billion annually for five years, which had been drafted in consultation with the American Israel Public Affairs Committee (AIPAC).

AIPAC, which lobbies for Israel in Washington, instead circulated a letter eventually signed by 71 senators supporting reconsideration of the loan guarantees at expiration of the 120 days. Then, just as they had in the summer months leading up to Bush's September clash with Israel's powerful lobby, AIPAC and its allies in congressional offices circulated the rumor that passage of the guarantees was a "done deal." They cited the letter signed by a veto-proof majority of senators as evidence.

In fact, however, the letter committed the senators to nothing, and the deal was rapidly coming undone, due largely to the intransigence of Israeli Prime Minister Yitzhak Shamir, both in the Israeli-occupied territories and at the conference called to negotiate an exchange of those territories for peace with all of Israel's Arab neighbors. Israel's standing both with the Bish administration and the American public plummeted, at exactly the same time US economic problems at home were hardening the public mood against foreign aid of any kind.

When members of Congress returned from Christmas and New Year holidays at home, they told Israel's lobby they had found their constituents fiercely opposed to any further aid in the face of Israeli intransigence. Leaders of major US Jewish organizations tried to tell both Shamir and his paid lobbyists in the US that, in the absence of serious Israeli concessions, they were beaten on the loan guarantees. Some went further, warning that pressing Congress and the president on the issue could also jeopardize Israel's annual US military and economic aid. It would be counterproductive to pursue the matter, they concluded, unless they could elicit the president's agreement in advance to whatever deal they tried to make with Congress.

Appeals to Shamir, preoccupied with his own upcoming elections and the support of 100,000 members of Israel's settler movement, apparently fell on deaf ears. Meetings between national Jewish leaders and Jewish officials of the Bush administration, including White House Middle East adviser Richard Haass, and State Department Policy Planning Director Dennis Ross, elicited assurances only that President Bush would make his decision, whatever it was to be, before the end of January.

There were three obvious courses the president could choose. He could acquiesce to the proposal by Sen. Patrick Leahy (D-VT) to offer loan guarantees conditioned on deducting from aid to Israel one dollar for every dollar the Israeli government spends on settlements. That proposal, however, offers unlimited opportunities for cheating by the Israelis (by shifting support of the settlements to allegedly privately raised funds and also by concealing actual Israeli government expenditures), and for endless acrimonious exchanges between the Bush administration and Israel's American Jewish supporters.

Bush also could choose to go public again, explaining to the American people why any unconditional support to Israel at this time would detail the peace process. Or, as a political candidate in an election year, the president can keep his counsel and challenge the Democratic Congress to pass unconditional and unpopular aid to Israel, and then veto it.

If he chooses the latter course, the only possibility for getting unconditional loan guarantees of any amount for Israel through Congress would be for key congressional allies of Israel to attach the guarantees to the foreign aid authorization bill, or other legislation important to the administration or essential to the smooth running of the US government.

If Congress does this, however, the president is likely to veto whatever bill contains the guarantee legislation, and place responsibility for any unpleasant consequences squarely upon the American lobbyists for Israel and the members of Congress who carry out their wishes. In fact, there are overriding foreign policy, domestic policy and moral reasons why, in the absence of Israeli concessions, the president cannot approve any such unconditional economic aid to Israel, as responsible Jewish leaders are well aware.

The Case Against Unconditional Loan Guarantees

The government of Israel defines the guarantee request as a "humanitarian" issue to absorb Jewish immigrants from the former Soviet Union into Israel. It is not. Such US aid frees the funds used to build Jewish settlements in the Israeli-occupied West Bank, Gaza Strip and Golan Heights, far from available jobs, on land taken from its owners in contravention of international law. It is not a humanitarian issue, but an attempt to foreclose the land-for-peace option presented by UN Security Council Resolution 242, which has been endorsed unconditionally by six successive US presidents.

In letters based upon AIPAC handouts, members of Congress are telling their constituents that Israel "has never defaulted on a loan." This is a blatant misinterpretation. Since 1949, according to the official Congressional Research Service, Israel has received $53 billion in economic and military aid from American taxpayers. Much of it first was extended in the form of loans, which Congress later quietly forgave by turning the loans into grants. Even while it waits for such loans to be forgiven, Israel pays no interest on them because of the Cranston Amendment, which provides that the level of US economic aid to Israel in any given year will never fall below the interest Israel owes to the US government for that year. In fact, Israel repays neither the principal nor the interst on it loans. The US taxpayer pays both.

Israel's lobbyists have falsely told Congress and the public that Israel has a good credit rating. If it did, however, it would not need the US government guarantees. Israel's long-term government debt not backed by US guarantees receives a triple B minus, the lowest investment rating on Standard and Poor's index, and D (on a scale of A to F) from the Export-Import Bank.

When the Conference of Presidents of Major American Jewish Organizations explored the possibility of obtaining loan guarantees from 20 wealthy members of the US Jewish community instead of a reluctant US government, according to Israeli journalist Dr. Israel Shahak, every businessman approached declined on the basis of Israel's low-rated employment ability. Some offered, instead, to help fund the lobbying campaign for US government guarantees, which will make US taxpayers liable if Israel defaults.

Recipients of campaign contributions from more than 100 deceptively named pro-Israel political action committees (PACs) in Congress are informing their constituents that the loan guarantees will "cost the taxpayer nothing." Every member of Congress knows this is untrue. In legislating previous loan guarantees for Israel, Congress has obligated the US government to pay administrative, servicing and secondary placement costs normally assumed by the borrower, not the lender. These will amount to between $3.1 billion and $7.1 billion for the $10 billion in loan guarantees.

In the likely event of an Israeli default, assuming a 30-year term and interest rates of 8.6 percent, US taxpayers would be obligated to pay an addditional $109.41 billion. Depending upon the terms of the loans, realistic estimates of the cost to US taxpayers range from $29 billion to $116.51 billion. In the case of the $400 million in loan guarantees provided to Israel in 1991, Sen. Robert Dole estimated that outright grants to Israel would have cost American taxpayers less than loan guarantees for the same amount.

Little to Show for Massive US Aid

Foreign countries or American communities stricken by natural disasters can make good cases for temporary relief. Countries undergoing disruptive political and economic changes, as in Eastern Europe today, can make similar temporary cases. Israel's annual aid, however, totalled $5.7 billion in 1991 alone, according to the US Department of State. That is more than $1,100 for every Israeli man, woman and child. Israel has little to show for 43 years of annual handouts, which now total almost one-third of American bilateral foreign aid, worldwide. This is because Israel has made no effort to reform its graft-ridden, ramshackle economy, 80 percent of which is government-controlled, its stultifying bureaucracy, or its inefficient state-owned industries. Its economy remains similar to those being dismantled all over Eastern Europe.

The loan guarantees would enable Israel to borrow money, at US taxpayer expense, on terms the US government does not make possible for any of its own states, cities or countries. Foreign aid programs are not entitlement programs and polls show that, when they understand what is happening, US voters will not support US leaders who pretend otherwise.

Foreign policy arguments against extending these loan guarantees, or any further unrestricted aid to Israel, are equally overriding. Much of the world united behind the US-led coalition to liberate Kuwait from an illegal Iraqi military occupation. This was not on the understanding that a double standard would be applied to other military occupations. Without restrictions, the loan guarantees would be used to consolidate an illegal Israeli military occupation of Palestinian and Syrian lands. The UN Security Council, with US support, has just condemned illegal deportations from those occupied territories, just one of the violations of humanitarian law under the Fourth Geneva Convention routinely practiced by Israel.

To extend further unrestricted aid to Israel at this time would send the wrong signal to the world, and to Yitzhak Shamir. It would bring to an immediate halt the Middle East peace negotiations President Bush and Secretary of State James Baker 3rd have set in motion. These US-sponsored talks, which started in Madrid and now have moved to Washington and Moscow, offer the first serious possibility of ending a dispute that has kept the Middle East in turmoil for the past 44 years.

A December Wall Street Journal/NBC poll found that American voters consider Israel the principal obstacle to Middle East peace by 41 to 29 percent. A November Wilstein Institute survey of Council of Jewish Federations officials (whose donations to Israeli and Jewish causes averaged $20,000 per year) found that 78 percent of these American Jewish leaders believe Israel should freeze West Bank settlements to obtain the loan guarantees and, surprisingly, 54 percent believe the Bush administration's policies are "helpful to Israel." A December Gallup Institute survey determined that, with peace negotiations underway, Israeli adults supported freezing Jewish settlements in the occupied territories by 51 to 44 percent.

Clearly, in refusing to extend unconditional loan guarantees to Israel, the president will have widespread support among the American public, responsible US Jewish leaders, worldwide public opinion, and in Israel itself. Israeli editor Adam Keller, in a letter to Rep. Lee Hamilton of Indiana asking the congressman to reconsider his support for unconditional loan guarantees to Israel, wrote:

"I would like to ask you to reconsider this position. . . It is as a true friend of Israel that I, and Israeli, call upon you not to do our country the grave disservice of giving a free hand to the enemies of peace; I call upon you to help our people-and peoples of this long-suffering region-to achieve the peace for which they long and which they deserve."

His plea speaks eloquently for all who fervently hope the president will link not just the loan guarantees but all further aid to Israel to a total freeze on Israeli settlement activity. It also should be linked to progress toward a land-for-peace settlement based upon UN Security Council Resolution 242, which calls for Israeli withdrawal from lands seized in 1967 in return for Arab acknowledgement of Israel's right to exist within secure and recognized boundaries.

Millions of Americans are grateful for the efforts President Bush and Secretary Baker have invested in bringing Arabs and Israelis face to face at the peace table to end a dispute that lies at the root of virtually all American problems in a vitally important region. They now ask the administration only to stay the course.