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American Loan Guarantees: $12 Billion

05 January 2003

By Yisrael Ne’eman

The Israeli government is in the middle of negotiating $12 billion worth of loan guarantees from the US administration.  The Americans are said to be quite in favor but all the details have not yet been worked out.  The Israeli delegation will be heading to Washington again in a few days.

Many figure the loan would serve Likud political ends, enhancing Prime Minister Sharon’s ability to obtain more seats in this month’s elections.  But this apparently is not so, since the negotiations and transfer of monies will not be concluded until the middle of April at the earliest, but more likely by the end of the spring. 

Despite Israel’s difficult financial situation none can be assured the loan will be approved in the end, even if optimism reigns at the moment.  The Americans have added a rider that the funds cannot be used for any development in the West Bank or Gaza.  It would be difficult to imagine the present government approving such a condition with the right wing settler conscious National Religious Party in the government and the fear in the Likud of losing right wing support to them or the National Unity/Yisrael Beitainu party in the elections.

Previously the Likud worried less and battled for the center of the political map, but as the investigations into party corruption deepened many ‘would be’ Likud supporters are returning to the Sephardi ultra-orthodox Shas party or the above mentioned right wing factions.  In addition the cabinet make-up at the moment leans quite a bit to the right even among Likud ministers such as Tzachi Hanegbi (Environment), Limor Livnat (Education), Uzi Landau (Internal Security) and quite possibly even Benyamin Netanyahu (Foreign Affairs).  Today, to accept the American conditions, even before negotiations were concluded would not only lose the Likud votes, which at one time they thought could be made up by gaining in the center, but surely split the party.

Previously the Likud right wing could have swallowed its pride and ideology while accepting such a condition and enhancing their ability to gain over 40 seats.  But heavy suspicions of wide spread corruption have caused many potential Likud voters to turn to the right and religious parties.  Any decision on taking the much needed loan guarantees with the limiting American conditions will need to be postponed.

Such a decision will have to wait until after the elections and be contingent upon a National Unity Government including the Likud, Labor and Shinui.  The latter two will certainly accept the American conditions as will some 30 – 40 % of the Likud.  However if the Likud builds a right wing - religious coalition, one can expect long and arduous negotiations which may fail. 

And if that is the case, the forecast on Israel’s economic front will be a lot more dismal than it is at the moment.