Israel Wants Loan Guarantees From US, Report Says

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

Jerusalem ( - A senior Israeli official is in Washington this week to ask the U.S. to consider extending loan guarantees to help prop up Israel's sagging economy, reports here have indicated.

Loan guarantees do not require the U.S. government to spend money; rather, they act as a guarantor for loans from U.S. banks to invest in growth-producing projects, an Israeli expert said.

The Israeli economy has been ravaged by loss of income and increased expenditures in two years of war against Palestinian terrorism.

A report published last week by the Labor and Social Affairs Ministry showed one in five Israelis living under the poverty line. That line is set at 1,383.70 shekels (about $294) per person, per month.

According to a report in the Hebrew daily Yediot Aharonot on Monday, Israel will ask for $10 billion in loan guarantees. The prime minister's office refused to confirm the report.

Yoram Ettinger, former Israeli liaison to the U.S. Congress, said he does not know if Israel is asking for loan guarantees or not, but the scheme represents a win-win situation for U.S. banks, U.S. taxpayers and Israel.

"The way it works is that Israel would ask for U.S. government guarantees for loans granted by American banks to Israel in order to finance growth producing projects," Ettinger said in a telephone interview.

It should be limited to growth-producing projects, he said, to make it easier for Israel to pay back the loans - something it has always done until today, he added.

According to Ettinger, the U.S. should consider backing the loans not only because it is Israel's best friend but also because it is good for America.

"For every $1 of growth in Israel - because Israel's top-heavy on brains and low on natural resources - it means 90 percent imports," Ettinger said. Higher imports means less imports from Asia and more from the U.S., he added.

In the end, it's a win-win situation for everyone, Ettinger said. The banks can extend loans risk free because of the government guarantees; the government is happy because Israel will be able to repay its debts; and Israel gets a good deal - because of the guarantees, the banks lower their interest rates and extend the repayment period.

Growth-producing projects that Israel is now considering include infrastructure projects like building a fast railroad; new roads on Israel's periphery; bridges; and investing in a better water infrastructure that could collect rainwater rather than letting it run off into the Mediterranean Sea.

In 1992, the U.S. extended $10 billion in loan guarantees to help with the absorption of some 1,000,000 immigrants from the former Soviet Union.

Housing, business, transportation, communications and infrastructure projects invested in at that time have generated $30 billion in growth, providing some $5 billion in exports from the U.S., Ettinger said.

The cost to the administration was negligible; it benefited the banks and the U.S. taxpayer; and Israel benefited from the "goodwill," he added.

Last month, following a meeting between President Bush and Sharon, the president said he had confidence in the Israeli economy.

Ettinger said at the time that the best thing Bush could do to show that confidence was to back the idea of loan guarantees.