Israel Mulls Trade-Off Between Security Fence and US Loan Guarantees

By Julie Stahl | July 7, 2008 | 8:14 PM EDT

Jerusalem ( - Israel says it can handle reductions in U.S. loan guarantees as retaliation for constructing Israeli communities in the West Bank. But Israel does not believe the money spent to build a security fence between Israel and the West Bank should be docked from its promised guarantees, a senior advisor to Israeli Prime Minister Ariel Sharon said on Wednesday.

Washington pledged last March to grant Israel $9 billion in loan guarantees over the next three years, which would enable Israel to obtain low-interest loans in the international market.

According to the arrangement and in line with the terms of previous loan guarantees, the U.S. said it would deduct from the promised guarantees any money spent on settlement activity in disputed areas, which the U.S. opposes.

Israel was in the process of issuing $1.6 billion worth of bonds based on those guarantees this week.

About 90 miles of the security barrier between Israel and the West Bank - intended to block suicide bombers and terrorists from entering Israel - have already been completed.

Sharon was set to discuss with his security cabinet on Wednesday the continuing path of the fence and whether to include the settlement city of Ariel, with a population of 18,000, and surrounding communities, within the fence but the meeting was postponed.

The prime minister's office would not confirm that the cancellation of the meeting was due to any dispute with the U.S. over the fence but media reports linked the two events.

Housing Minister Effy Eitam suggested in a radio interview that while the Americans are extending help to Israel on an economic plan, "there should be limits to the interference by a foreign country on matters of vital security for Israel."
But an Israeli government source said that, "The meeting was postponed because of scheduling conflicts brought on by the prolonged budgetary deliberations." (The government is in the midst of discussing Israel's 2004 budget.)

Sharon's senior foreign policy advisor, Zalman Shoval, said that while Israel can swallow the idea of deductions for money spent for building over the green line, Israel does not believe that that includes the security fence.

The "green line" refers to the invisible line, which marked the boundary between Israel and the Jordanian occupied West Bank until 1967. Some 200,000 Israelis live in communities, not including Jerusalem, in the area that the Palestinians want to use for a future state.

"The principle that the loan guarantee amounts will be reduced by the sums Israel spends across the green line, in principle is acceptable to Israel. It's part of the deal," Shoval said.

That policy was adopted during the previous loan guarantees in 1992, when the U.S., extended $10 billion in guarantees to help absorb a million new immigrants from the former Soviet Union.

But even during the previous loan guarantees under the administration of former President George Bush and his Secretary of State James Baker, the U.S. was "fairly considerate" about not deducting expenses Israel had across the green line for security purposes, Shoval said.

"Certainly a security fence to protect the lives of Jewish people from suicide bombers... is a security expense par excellence," he said. Israel feels it should not be deducted from the guarantees, he added.

A section of the barrier, which is part concrete and part fence, cuts across Palestinian farmlands. The U.S. has urged Israel to put the fence on its own side of the green line, saying otherwise it could be interpreted as a political device pre-judging the size of a future Palestinian state.

But Shoval argued that forcing Israel to build the fence along the green line would instead be a political statement, and would place thousands of Israelis in danger outside the security barrier.

"Residents of Ariel... have to be protected," Shoval said. The fence is being built for security reasons, he said. "If there were no terrorists or suicide bombers [we would] not need to build [it]... anyway, once there will be peace it will be dismantled."

Forcing Israel to build the fence along the green line would be a political statement, he said, because the future of the West Bank was supposed to be determined as a result of negotiations between Israel and the Palestinians.

According to White House spokesman Scott McClellan, President Bush designated Secretary of State Colin Powell to oversee reductions in the loan guarantees regarding settlements, but no decision had yet been made related to the construction of the fence.

"Secretary Powell will make the determination in terms of what spending reductions there might be," McClellan said.

"In terms of the fence, there are still discussions ongoing," he said. "We have made our concerns known. I don't rule anything out at this point."

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