August/September 1992, Page 29, 30

Congress

Loan Guarantees, Again?

By Dennis J. Wamsted

Elections here and abroad apparently have resuscitated Israel's hotly contested, seemingly lifeless request for $10 billion in U.S. loan guarantees to provide housing for Jewish immigrants from the former Soviet Union. However, there is at least one imposing hurdle that must be cleared before Congress can approve any loan guarantee request.

Speculation about the loan guarantees began in earnest following the Labor party's triumph in Israel's June elections, which swept the Likud party and its hardline leader Yitzhak Shamir out of office after eight years of Likud or Labor-Likud coalition governments. In Shamir's place, Yitzhak Rabin has become prime minister and, although in office for little more than a month, he already has demonstrated a more flexible attitude than Shamir. Just prior to a July visit by U.S. Secretary of State James Baker, Rabin announced his government's intent to curb settlements in the occupied West Bank and Gaza Strip.

This action, and private guarantees from Rabin, apparently struck a responsive chord. Baker was quoted in The New York Times saying that "President Bush and this administration. . . attach a very high priority to the absorption of immigrants to Israel." Although Baker did not announce an agreement on the loan guarantees, the outlines of a deal began to come into focus as President Bush invited Rabin to visit him in Kennebunkport early in August.

Even before Baker's trip, there was speculation on Capitol Hill that Rabin's victory might entice the administration to seek a compromise. For example, Sen. Patrick Leahy (D-VT), the influential chairman of the Senate Appropriations foreign operations subcommittee, was quoted by Congressional Quarterly in late June as saying the administration was studying the possibility of reviving the loan guarantees. One possible option would be a variation of Leahy's earlier proposal, which would have given Israel the sought after $10 billion over five years, but with penalty provisions to cut the guarantees should Israel resume construction of settlements in the occupied territories.

The looming U.S. presidential election is frequently cited as the driving force behind the administration's search for a compromise. Conventional political wisdom was that, in a three-way race against Democratic nominee Bill Clinton and independent Ross Perot, Bush would need to mend fences with the politically influential American Jewish community.

However, with Perot now out of the race, the political calculus may change yet again. Given Clinton and vice-presidential running mate Al Gore's strong pro-Israel records, as well as the tendency of American Jews to vote Democratic, Bush and his political advisers may conclude that, unless Rabin is extremely forthcoming in the peace process, the Republicans have nothing to gain by compromising, possibly stymieing the guarantees for a second, and probably final, time.

Regardless of these political calculations, there is a major hurdle currently blocking any compromise initiative: There is no money in next year's U.S. foreign aid budget to establish the legally required fund to cover potential loan losses.

The House Votes

The money shortfall is Rep. David Obey's (D-WI) handiwork. Obey, the chairman of the House Appropriations foreign operations subcommittee, which controls funding for U.S. foreign aid, crafted and won approval in late June for an appropriations bill for fiscal year 1993 that toals just $13.8 billion-$1.3 billion below the administration's request. Further, the bill is roughly $300 million below current-year funding.

Then, to ensure that the House-approved cuts were not restored by the Senate, Obey proposed and won approval for an amendment to transfer the saved foreign aid funds to the domestic budget, earmarking the money for transportation infrastructure projects. This complicated procedural maneuver has been largely overlooked, but it has major implications for the loan guarantee debate and could derail any compromise initiative entirely.

These implications were not lost on a number of Israel's congressional supporters, who argued during the House debate against Obey's measure. Typical of these arguments was that of pro-Israel activist Rep. Charles Schumer (D-NY), who urged his colleagues to oppose Obey's proposal because it would leave U.S. policymakers no flexibility: "The problem that I am most concerned about is the problem in the Middle East, the problem of tens of thousands, maybe hundreds of thousands of Soviet citizens, Russian citizens, Ukrainian citizens. . . who may wish to leave that country and cannot because we do not have loan guarantees," Schumer said. "I think it is foolhardly and a mistake for us to take every last nickel. . . out of the foreign affairs pot and spend it all now, so I am going to vote no on this amendment."

Another pro-Israel regular, Rep. Benjamin Gilman (R-NY), was even more categoric in his opposition. He said he could not support Obey's proposal because it would remove all U.S. flexibility in foreign aid. In particular, he warned his colleagues, "The Obey amendment precludes any possibility of subsidy appropriations for immigrant absorption loan guarantees to Israel, if an agreement can be reached between the Israeli government and the administration."

Other strongly pro-Israel members of the House who spoke out against the proposal included Reps. Mel Levine (D-CA) and Howard Berman (D-CA), both of whom couched their opposition in terms of concern about the amendment's constraints on U.S. policy. Despite their opposition, the measure passed by a vote of 213 to 190, with 31 members not voting.

While subject to future change, the House action could have major implications for any future compromise, since current federal law would require the administration to set aside a certain percentage of the loan guarantees (perhaps as much as 10 percent) in the U.S. Treasury to guard against Israeli default. The problem is that there now is no money in the House-approved U.S. foreign aid budget to meet this federal requirement.

Whether the Senate will follow the House's example remains to be seen; the Senate Appropriations Committee likely will not complete action on its version of the foreign aid bill before early September.

House Numbers

On the question of foreign aid, while the House did indeed slash $1.3 billion from the Bush administration's request for fiscal 1993, it did not touch the requests for Israel or Egypt, even though the bulk of the cuts were in the economic support fund and foreign military financing accounts, which traditionally have been weighted heavily toward the two Middle East nations.

Under the House plan the bias now is even more pronounced. For example, in the worldwide ESF program, the administration had requested $3.1 billion for fiscal 1993, down about $56 million from the current level. However, the House cut this request to just over $2.7 billion, a reduction of $373 million. At the same time, the House exempted Israel and Egypt from cuts in their economic aid. Thus Israel, which is slated to get $1.2 billion in economic aid next year, and Egypt, which will get about $815 million, now will account for 73.5 percent of American ESF aid worldwide.

Similarly, the House cut the foreign military financing account to $3.3 billion from the $4 billion requested by the administration for fiscal '93 and the $3.9 billion in current-year funding. Once again, though, the House declined to cut military aid to Israel and Egypt from their current levels-$1.8 billion and $1.2 billion, respectively. Under this plan, Israel and Egypt will account for almost 91 percent of worldwide foreign military aid in the U.S. budget in fiscal 1993. Reduced to its essentials, the House votes allocated 83 percent of worldwide U.S. bilateral aid to only two countries, Israel and Egypt. Loan guarantees to Israel would only increase this gross imbalance.

Dennis J. Wamsted is a free-lance writer specializing in Congress and the Middle East.

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