Obama to recommend extending loan guarantees for Israel

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REPORTING FROM JERUSALEM -- The Obama administration will recommend that Congress extend American loan guarantees currently provided to Israel, according to an Israeli report Wednesday.

According to the Haaretz daily, two American officials informed Israeli Deputy Foreign Minister Danny Ayalon of the decision during a meeting in Israel earlier this week.

Deputy Secretary of State Thomas Nides and Deputy Treasury Secretary Neil Wolin reportedly told Ayalon they believed there would be broad bipartisan support for the move in Congress, which has to approve a measure extending the guarantees until September 2015.

The current loan guarantees arrangement was reached by the two countries in 2003, when current Prime Minister Benjamin Netanyahu was Israel’s finance minister, and essentially provides a U.S. guarantee to vouch for loans Israel takes abroad. The U.S. only pays out on the guarantees if Israel fails to repay its debts.

The guarantees are separate from U.S. foreign aid to Israel, most of which is in the form of military assistance.

The original amount of the guarantees was $9 billion. But under the agreement, all of Israel’s expenditures on and investments in settlements across the so-called Green Line, the country’s last-agreed borders before 1967, are deducted from the overall sum, leaving the total Israel can raise under the guarantees at $3.8 billion. Although Israel hasn’t had to use the guarantees to raise money since 2004, the possibility of the agreement not being extended past its expiration date of this coming September caused concerns. The loan guarantees boost Israel’s credit rating and allow it to take loans at low interest rates.

Israel’s economy fared well during the recent global financial turmoil but the country is susceptible to unpredictable developments in other areas. The guarantees are a ‘security net for war, natural disasters or economic crisis that will allow Israel to maintain economic stability in an unstable environment,’ a senior official in Israel’s foreign ministry told Haaretz.

An internal report from the Office of the Inspector General of the U.S. Department of State this summer had recommended terminating the guarantees agreement at the end of 2011, according to Israeli media.

On occasion, the loan guarantees have served for political leverage in ties between Israel and the U.S. That occurred most notably in the early 1990s, when relations between the two governments -- in particular between Israeli Prime Minister Yitzhak Shamir and Secretary of State James Baker -- reached a low point. The crisis was eventually resolved when Shamir lost the 1992 elections to the late Yitzhak Rabin.

In 2010, U.S. envoy and former Sen. George J. Mitchell referred to that dispute in an interview. Some Israeli officials perceived the comment as a threat to pressure Israel anew but dismissed it, saying Israel was doing fine without the guarantees anyway. Nonetheless, Israeli Ambassador to the U.S. Michael Oren formally requested last September that the guarantees be extended.

‘The U.S. is a true friend and ally of Israel,’ Ayalon said of the decision.

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-- Batsheva Sobelman