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U.S. to reduce future loan guarantees for IsraelOfficial: Indirect aid to be cut as punishment for settlements
WASHINGTON (CNN) -- The Bush administration will go ahead with $1.6 billion in loan guarantees requested by Israel but will reduce subsequent guarantees as punishment for expanding Jewish settlements in the occupied territories, the State Department announced Tuesday. The exact amount of the reduction is still being determined, department spokesman Adam Ereli said, but it "will be an estimate based on a range of Israeli government expenses associated with the settlement activity." Also undecided is whether to further reduce the guarantees in response to Israel's refusal to stop building the so-called "security fence" to separate itself from Palestinian communities in the West Bank. That delay puts off an administration decision that could strain relations with Israel and provoke a fight with Congress. Israel needs loans to shore up its faltering economy, hurting from terrorist attacks and the war in Iraq. The $1.6 billion guarantee will back Israeli bonds in that amount, Ereli said. Under a package approved by Congress this year, Israel is eligible for $9 billion in U.S. loan guarantees over the next three years, or $3 billion a year. That is in addition to $3 billion Israel gets from the United States in direct military and economic aid, according to The Associated Press. U.S. law stipulates the guarantees may support only activities on land Israel held before the 1967 Six Day War, Ereli said. That excludes the West Bank, Gaza, the Golan Heights and East Jerusalem. The assistance package authorizes the president to reduce the guarantees by an amount equivalent to what Israel spends on activities "inconsistent" with the understanding between the two countries, Ereli said. Such activities would include settlement expansion in areas outside the 1967 boundaries, he said, which also is forbidden under the so-called "road map" to peace backed by the United States, the European Union, Russia and the United Nations. The administration's decision continues previous policy. The United States has penalized Israel at least twice in the past 10 years for expanding settlements in areas that might become part of a Palestinian state, the AP reported. Israel gets no direct assistance from the loan guarantees, under which the United States promises that Israel will repay loans it obtains from commercial banks. That helps Israel get better rates. The United States provides loan guarantees to many countries. Under the arrangement, it sets aside a percentage of the total loan, in escrow, so to speak, based on the credit rating of the country taking out the loan. This year the Bush administration said it also would consider imposing additional financial sanctions because of Israel's construction of the West Bank barrier. President Bush has called the fence "a problem" that undermines efforts to revitalize the peace process. "Our concerns about the fence issue are well known to the Israeli government," Ereli said. "The relationship between the fence activity and the loan guarantees is an issue under discussion." Ereli said the United States has a problem with the fence if it "starts to infringe and take over Palestinian land," which would not respect the borders of the West Bank. Two administration officials familiar with the policy discussions said Monday that the United States planned to leave the door open to further reductions in the loan guarantee package in the near future. "We are ready to do it and prepared to do it but we are continuing our discussions and have not made a final decision," one of the officials said. A reduction in loan guarantees because of the continued settlement activities is something Israel anticipates, though it has tried to convince the Bush administration that the fence is a necessary security step. Pro-Israel lawmakers in Congress have vowed to criticize the administration if it makes further cuts in the loan guarantee package to deduct costs related to construction of the barrier. CNN correspondent John King contributed to this report. Copyright 2003 CNN. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. Associated Press contributed to this report.
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