Israel to Seek up to $10 Billion in U.S. Loan Guarantees

Israel will ask the United States for loan guarantees aimed at jump-strating its economy which has been damaged by two years of violence and the request will total between $8 billion and $10 billion, a senior government official said Thursday.

The official, who spoke on condition of anonymity, told The Associated Press that the Finance and Defense ministries are finalizing the request and would forward it to the United States in the coming days.

The request for guarantees on foreign bank loans would be in addition to the $2.9 billion in direct loans and grants that Israel receives annually from the United States, the official said.

Israel, which receives the largest U.S. aid package of any country, relies on the loan guarantees to borrow at lower interest rates.

There is no cost to the United States if Israel repays the loans and Israel has never defaulted on a loan, the official said.

A State Department spokesman, Philip T. Reeker, said the United States has not yet received the request and declined to comment.

Prime Minister Ariel Sharon, campaigning for re-election, asked President Bush for $10 billion in loan guarantees at a White House meeting last month, according to Jane's Foreign Report.

Bush, following the Oct. 16 meeting, said "terror has affected the Israeli economy," but made no specific mention of further loan guarantees.

"We've got great confidence in the Israeli economy, because we've got great confidence in the Israeli people," Bush told reporters at the time. "I'm convinced that the economy will be strong."

More specific requests were discussed when Sharon's chief of staff, Dov Weisglass, met with U.S. officials in Washington several weeks ago, the official said.

Israel's $100 billion economy has been battered by the violence, which has driven away tourists and investors, as well as the global economic slowdown and the crisis in the high-tech sector on which the country depends.

Economic growth was above 6 percent in 2000, but has ground to a halt. More than 10 percent of the work force is unemployed and inflation has risen to about 8 percent this year.

The official said the economic outlook could worsen if the United States attacks Iraq — which many fear could prompt Baghdad to fire missiles, or chemical or biological weapons, at Israel.

The United States guaranteed $10 billion in loans for Israel a decade ago to help it absorb immigrants from the former Soviet Union.

Angry over Israeli settlements in the occupied West Bank and Gaza, then-President George Bush held up the guarantees until the hard-line Yitzhak Shamir was replaced as Israeli prime minister by more moderate Yitzhak Rabin, who signed an interim peace treaty with the Palestinian Liberation Organization.