[Congressional Record Volume 142, Number 55 (Thursday, April 25, 1996)]
[Extensions of Remarks]
[Pages E632-E633]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    LOAN GUARANTEES FOR ISRAEL--A GREAT SUCCESS FOR ISRAEL AND U.S. 
                               ASSISTANCE

                                 ______


                            HON. TOM LANTOS

                             of california

                    in the house of representatives

                       Wednesday, April 24, 1996

  Mr. LANTOS. Mr. Speaker, in this era when trashing government 
programs seems to be more politically correct than praising government 
success, it is a pleasure indeed to call attention to a program that 
has achieved remarkable success. This is the loan guarantee program 
that was instituted in 1992, under terms of which the United States 
Government guaranteed loans to the Government of Israel totally $2 
billion per year for 5 years.
  The funds were provided to assist the Government of Israel deal with 
the massive influx of 700,000 immigrants from the former Soviet Union 
and other areas. The United States did

[[Page E633]]

not loan the money; it had no other obligation than to co-sign the note 
and act as an insurer of the loans. There is no risk to the United 
States, unless Israel defaults on the loans--something Israel has never 
done on any previous United States loan. The Israelis receive loans at 
a substantially lower rate of interest, the United States is able to 
help our only democratic ally in the Middle East, and the United States 
receives from Israel a $90 million fee each year as a form of insurance 
against default.
  Mr. Speaker, the great success of the loan guarantees is detailed in 
an excellent article by Douglas M. Bloomfield, which appeared in the 
April 11 issue of the Washington Jewish Week. Mr. Bloomfield is a 
former Congressional staffer and a distinguished journalist who has 
written extensively on Israel and the Middle East. Mr. Speaker, I ask 
that his analysis of the loan guarantees be placed in the Record, and I 
urge my colleagues to give thoughtful consideration to this fine 
report.

            [From the Washington Jewish Week, Apr. 11, 1996]

                Loan Guarantees an Israeli Success Story

                       (By Douglas M. Bloomfield)

       At a time when it is in vogue to trash government in 
     general and foreign aid in particular, there is a dramatic 
     success story about a program that did everything it was 
     supposed to and then some. The recipient country reaped 
     enormous benefit, and American taxpayers may wind up making a 
     $450 million profit on the deal.
       The program is the once-controversial $10 billion loan 
     guarantees for Israel that played such an important role in 
     U.S. and Israeli elections four years ago.
       That was when President Bush withheld approval of the 
     guarantees as leverage to pressure Prime Minister Yitzhak 
     Shamir to alter Israeli settlement policies. In the ensuing 
     confrontation between two leaders who didn't like each other 
     very much, bilateral relations plunged.
       Shamir turned unsuccessfully to American Jewish activists 
     to get Congress to force Bush to give in. The president 
     denounced the citizen lobbyists and questioned their loyalty 
     as Americans.
       Bush won his battle with Shamir over the loan guarantee 
     and, to his satisfaction, Shamir lost the spring, 1992 
     Israeli elections. Then, to the satisfaction of the 
     overwhelming majority of American Jewish voters, Bush lost 
     the November, 1992 election.
       Shamir's losing and bruising public campaign for the 
     guarantees did cost him economically and politically at home. 
     It was considered a major contributor to his own defeat.
       Bush's use of the guarantees as a political weapon sent 
     negative signals to the international money markets, said an 
     Israeli economist. ``It was tantamount to a no-confidence 
     vote politically and economically,'' he said, making 
     borrowing more difficult and more costly for Israel.
       In a last attempt to salvage some Jewish support for his 
     own reelection effort, and under pressure from the Congress, 
     Bush invited newly-elected Israeli Prime Minister Yitzhak 
     Rabin to Kennebunkport and bestowed upon him the gift of the 
     loan guarantees. It was too late to help Bush, but it did a 
     lot for Israel.
       Here's how the guarantees work: The U.S. Government does 
     not actually loan, much less give, any money to Israel; it 
     co-signs or guarantees repayment of a specified amount of 
     Israel borrowing. In this case, the amount was $10 billion in 
     five equal, annual installments. The American guarantees 
     assure lower borrowing rates from international banks for 
     Israel.
       Under the deal worked out with the Congress, Israel agreed 
     to pay $90 million a year 4.5 percent of each $2 billion 
     installment; the Bush administration had asked for a 
     prohibitive 13.5 percent fee) to the U.S. Treasury as a form 
     of insurance against default. Only if Israel defaulted--
     something it has never done on any previous U.S. loan--would 
     American taxpayers ever have to pay anything.
       The purpose of the guarantees is to help Israel borrow 
     money at the best possible rate to finance economic expansion 
     associated with the influx of nearly 700,000 new immigrants 
     over the past seven years and the opportunities presented by 
     the peace process. The money raised could only be used for 
     investment and infrastructure, not the general government 
     budget.
       Although often misrepresented as housing guarantees for new 
     immigrants, there never was any intention to use the money 
     for the government to build houses or directly the newcomers. 
     There is a separate $80 million annual U.S. refugee aid 
     program for that.
       Now in its fourth year, the program is widely considered a 
     major success. American taxpayers are getting their $90 
     million annual ``insurance premiums,'' trade between the two 
     countries has increased more than 40 percent, and the program 
     is doing just what it was intended to do. A Washington 
     rarity.
       The humanitarian objective of immigrant absorption is being 
     achieved, and it is being done through the private sector, 
     not by government-created jobs and housing projects, as in 
     the past. In addition, the government is fulfilling its 1992 
     commitment to the U.S. government to accelerate deregulation, 
     privatization of government-owned corporations and economic 
     reforms began in the 1980s with prodding and assistance from 
     the Reagan administration.
       The guaranteed loans supply Israel with affordable foreign 
     currency. An expanding economy that is absorbing new 
     immigrants has to increase imports faster than exports, and 
     it needs dollars to pay for that because the shekel is not a 
     convertible currency. With the guarantees the Bank of Israel 
     can borrow enough dollars to exchange for shekels from 
     Israeli businesses making those foreign purchases.
       The resultant strength of the economy can be seen in a few 
     statistics:
       Unemployment is down from 11 percent four years ago to six 
     percent, the lowest level in more than a decade. For new 
     immigrants, it dropped from about 25 percent to six percent.
       Gross Domestic Product grew seven percent last year in real 
     terms, up more than 40 percent since 1990.
       Private sector growth is up eight percent for each of the 
     past two years in real terms and 50 percent since 1990.
       Inflation has dropped from 18 percent in 1991 to eight 
     percent today.
       90 percent of the jobs created in the last several years 
     have been in the private sector.
       The loan guarantees gave the Israeli economy an intended 
     boost, and achieved the goals U.S. and Israeli policy makers 
     sought. But will the economy cool off and go into a slump 
     after the five-year program expires in 1997?
       Not likely, says Ohad Marani, the minister for financial 
     affairs in the Israeli embassy in Washington. About four 
     months ago the Israeli treasury decided to test the waters by 
     floating a bond issue on Wall Street in dollars without any 
     American government guarantees or involvement.
       The $250-million issue, known as Yankee bonds, was 
     oversubscribed and Israel got a very favorable interest rate, 
     demonstrating the government can raise money without American 
     guarantees, he said. Marani attributed the success to 
     Israel's strong economy, a favorable standing with Standard & 
     Poors and other rating services and increased regional 
     stability as a result of the peace process. A similar bond 
     sale is planned in Europe next month.
       ``The guarantees gave Israel the confidence it had enough 
     currency to absorb the new immigrants,'' said Dan Halperin, 
     the Israeli Treasury's top official in Washington in the 
     1980's ``and the Yankee bonds prove that today Israel can 
     slowly begin raising money on its own credit.''

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