Israel Hopes US Says 'Yes' on Loan Guarantees

By Julie Stahl | July 7, 2008 | 8:12 PM EDT

Jerusalem ( - Israel is hoping to receive billions of dollars in loan guarantees from the U.S. soon to replace the investment loss prompted by two years of the Palestinian uprising. The intifada has wreaked havoc on the economy, sources in Israeli Prime Minister Ariel Sharon's office said on Tuesday.

After two weeks of unconfirmed media reports about the aid request, the prime minister's office issued a statement on Monday saying that the Prime Minister's Bureau Director Dov Weisglass, Finance Ministry Director-General Ohad Marani and Israeli Ambassador to the U.S. Danny Ayalon had met with National Security Adviser Condoleezza Rice.

Marani presented a request for aid from the U.S. in light of the economic situation in Israel, the statement said. A reply to the request was promised soon.

The request, reportedly for $7-10 billion dollars in loan guarantees, would not cost the U.S. anything as long as Israel pays back the loans, and it would enable Israel to obtain low-interest, long-term loans for growth-producing projects. Israel has never defaulted on a loan.

"Basically, the administration looks at it favorably," said the source in the prime minister's office, who asked not to be named. The request still has to be approved by Congress.

During the prime minister's last meeting at the White House, President Bush mentioned the administration's confidence in Israel's economy. Israel is hoping to receive the money for investment and for infrastructure.

"This definitely would enable us to ask for commercial loans at a reasonable rate," the source said.

It would be a substitute for the loss of private investment during the last two years and it would improve Israel's international credit rating. Once it was clear that the U.S. was guaranteeing loans, it would also have a positive psychological affect on investors, he added.

"Israel is in a very difficult situation," the source said. "[It needs] to have the money to stabilize the economy and be able to move forward with the economy."

According to the source, Israel is also hoping to receive $200 million in defense aid as part of the financial package in order to prepare itself for an expected U.S. attack against Iraq, which will likely have repercussions for Israel.

Turkey and Jordan received American military aid of about $2 billion last week to prepare for a U.S. strike on Iraq.

The $200 million was part hundreds of millions of dollars promised former Prime Minister Ehud Barak by former President Bill Clinton to help in Israel's redeployment from southern Lebanon.

None of the $800 million pledged by Clinton was ever approved by Congress and consequently was never granted to Israel.

See Earlier Story:
Israel Wants Loan Guarantees from the US (12 Nov. 2002)