Thu, Nov 27, 2003 page6

• US reduces loan guarantees to Israel

  • NY TIMES NEWS SERVICE
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  US President George W. Bush's administration, in a rare rebuke to Israeli Prime Minister Ariel Sharon, has decided to rescind US$289.5 million in American-backed loan guarantees for Israel as a punishment for illegal construction activities in the West Bank, the Israeli Embassy announced on Tuesday.

  An embassy spokesman in Washington said that Israel had accepted the reality that some of its construction activities in the West Bank were inconsistent with American policies and had agreed to deduct the US$289.5 million from the US$3 billion in loan guarantees that were due to Israel this year.

  

  Palestinian children at the dividing wall under construction in the West Bank village of Nazlat Issa on Tuesday.

  PHOTO: EPA

  Although it was the US that took the action on the loan guarantees, the announcement was pointedly made by Israel. After the Israeli statement, a White House spokesman said that the Bush administration welcomed what Israel had done, and expressed gratitude for its acknowledgment that its activities in the West Bank were inconsistent with American policy.

  Further, the White House maintained, Israel's agreement on the guarantees represented the "close and continuous cooperation" between the countries -- a statement reflecting the extreme political sensitivity in Washington to taking any action that might upset American supporters of Israel.

  The agreement on the figure was worked out during the day at a meeting between top Bush administration officials and Dov Weisglass, chief of staff for Sharon.

  Bush administration officials have said that the decision on cutting the loan guarantees was made in principle some months ago, but that an exact number had been held up because of disagreements with Israel over how much of the activity in the West Bank was subject to American review as required by law.

  As enacted by Congress, aid to Israel is governed by a requirement that the loan guarantees must be reduced by whatever amount Israel spends on settlements in the West Bank, where an American-backed peace plan envisions a Palestinian state to exist eventually.

  Earlier this year, Congress authorized a total of US$9 billion in loan guarantees over three years. The US$289.5 million would be deducted from the first round.

  American and Israeli officials note that the amount of money Israel would be sacrificing is actually quite small. Without the guarantees, Israel would probably be able to borrow the money at a somewhat higher interest rate, costing it several million dollars.

  The decision on the loan guarantees ends a period of uncertainty and contention between American and Israeli officials, but the issues at the center of the disagreement are certain to remain.

  There was no specification, for instance, of exactly what activities the latest action was intended to punish.

  The US takes the position that various expansions of settlements in the West Bank violated US policy. In addition, administration officials say that parts of a barrier being built in the West Bank to wall settlers off from Palestinians also violate American policies.

  Bush has asked Israel not to build those parts of the barrier that jut into Palestinian communities, cutting Palestinians off from their farms, workplaces, schools and other areas. Sharon has refused the appeal.

  The agreement does not specify whether the barrier is part of the activity in the West Bank that led to the decision to cut the loan guarantees, an Israeli spokesman said.
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