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Foreign Policy Articles Why
Israel Needs New Loan Guarantees
Foward Sadly, this has not happened. As Israel braces for what may become an all-out war with the Palestinians and their allies, its military establishment finds itself preparing for hostilities across the full spectrum of conflict, but with resources insufficient for the task. To make matters worse, Israel's Defense Ministry has had to make painful tradeoffs in its planning, most significantly in sacrificing part of its planned investment in a new generation of weapons systems in favor of more immediate operational needs. Even so, Israel's combat capability has suffered greatly, as measured by a number of readiness indicators. Its armed forces, faced with an ongoing Palestinian uprising, have stood on high alert for most of the past 10 months, consuming scarce funds and disrupting Israel's vaunted training regime. This situation should be a cause for great concern among U.S. policymakers who, for more than two decades, have made America's commitment to Israel's qualitative edge a cornerstone of the bilateral relationship. Today, this edge is being systematically eroded by the proliferation of state-of-the-art weaponry in the region's confrontation states. Countries such as Syria, Iraq, Libya and Iran are acquiring weapons of mass destruction and the delivery systems necessary to mount a devastating first strike against Israel. Even Egypt, a country at peace with Israel, is expanding its military capability. Each of these developments only increases the drain on diminishing Israeli resources. As reductions in Israel's military budget cut ever deeper, the country is progressively weakened, making it vulnerable to attack and less free to defend its interests. Infirmity among nations, like infirmity on the plains of the Serengeti, telegraphs a message to would-be predators that the wall of deterrence has been breached. This could have dire consequences for both Israel and the United States. To help Israel meet its urgent defensive requirements, both Washington and Jerusalem should consider an idea that could restore Israel's capability to deal quickly and decisively with any combination of adversaries. It also would enhance U.S. security interests in the region by lessening the threat of a regional Middle Eastern war. One powerful suggestion is for the United States to extend to Israel a package of military loan guarantees in the amount of $10 billion to $20 billion. The guarantees would be provided in a fashion similar to the manner in which Israel received $10 billion in humanitarian loan guarantees a decade ago to help cover the cost of resettling refugees from the former Soviet Union and Ethiopia. It is an idea of proven success, conveying mutual benefit to both parties. Unlike traditional foreign aid, loan guarantees are neither cash transfers nor direct loans. As such, they do not appear as outlays against the federal budget. Instead, the Government of Israel would go to the private market to raise funds using the U.S. loan guarantees only to secure a lower interest rate. In keeping with past practice, Israel may wish to assume the subsidy cost and administrative fees associated with the loan guarantees to ensure that this initiative results in absolutely no cost to the U.S. Treasury. This would enhance not only Israel's standing with American taxpayers, but also the likelihood of Congress accepting the proposal. Beyond allowing for the immediate acquisition of much-needed defense equipment, this idea has several potential benefits for Israel:
The commercial benefits to the United States are equally significant. Since a sizeable portion of Israel's military equipment comes from America, multibillion-dollar purchase orders would do much to boost sales and jobs within the sagging American commercial defense industry, providing a stimulus to the American economy. The success of the 1992 loan guarantee program and the faithfulness with which Israel has repaid its obligations should instill confidence among U.S. policy-makers that a new guarantee initiative would work. At the time, Israel and Norway were the only two countries that had never defaulted on a U.S. Government loan. Israel is in a far better position to pay off its debt today than it was a decade ago, when its economy was much smaller, its exports were fewer, and the Gulf War had cut deeply into its traditional revenue sources. For U.S. Treasury officials, Israel is a safe bet against default. The international rating agency, Standard and Poor's (S&P), recently announced that Israel's credit rating continues to stand at "A-," placing it among the world's most secure investment locations. The collapse of the Oslo peace process has seen a dramatic shift in the political winds in Washington. Policymakers who once doubted Israel's commitment to peace understand now that it is the PLO, not Israel, that is obstructing a settlement and pushing the region to the brink of war. As such, many in Congress and the administration may be willing to examine the numerous benefits of a new loan guarantee package with the understanding that it would send a powerful signal to the opponents of peace that the United States will not abandon its historic commitment to Israel's security. Israel and the administration should act swiftly to conclude an agreement on a military loan guarantee package before Congress adjourns this fall. Should Israel's emergency situation worsen, it is vital that this borrowing authority be approved and available for Israel's immediate use so that valuable time will not be wasted, and the attention of the two governments diverted from other, more important strategic concerns. Mr. Fishbein is president of Fishbein Associates Inc., a public policy consulting firm based in Potomac, Md. He is a former professional staff member of the Senate Appropriations Committee and former special assistant for national security affairs to Sen. Daniel Inouye. |
