Middle East History: It Happened in May; Israel Requests $10 Billion in U.S. Loan Guarantees for Soviet Immigrants

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MIDDLE EAST HISTORY: IT HAPPENED IN MAY; Israel Requests $10 Billion in U.S. Loan Guarantees for Soviet Immigrants

By Donald Neff

It was four years ago, on May 5, 1991, that Israeli Ambassador to the United States Zalman Shoval said Israel would soon ask America for $10 billion in loan guarantees to help provide housing for as many as a million Soviet immigrants expected to arrive in Israel over the next five years. 1 His statement marked the beginning of the sharpest clash ever between Washington and Tel Aviv over the question of Jewish settlements in the Palestinian territories occupied by Israeli troops. The battle raged over the next 16 months, with President George Bush seeking to do what no president had ever had the courage to attempt--link U.S. aid to Israel's settlement policy.

Despite a heroic effort, in the end the president's effort to link U.S. aid to restrictions on Jewish settlements was lost. Israel got its $10 billion in guarantees and at the same time went ahead with a vigorous program to establish settlements on Palestinian land. 2

Ambassador Shoval's warning about Israel's pending request for loan guarantees came at a delicate time in the Middle East. America had just led a coalition of forces to turn back Iraq's invasion of Kuwait and Bush's popularity was at an all-time peak. He and Secretary of State James A. Baker III were deep in an active campaign to take advantage of the high standing of the United States in the region by trying to jump-start the peace process.

But a new disturbing factor had appeared. It was at this time that unprecedented numbers of Jews from Russia were pouring into Israel. More than 200,000 had arrived between mid-1989 and mid-1991. The massive immigration alarmed Arabs who feared the new immigrants would settle in the occupied territories and thereby further deprive Palestinians of their land.

Bush and Baker were caught in a dilemma. For humanitarian and domestic political reasons, they wanted to aid Israel in its efforts to house the new immigrants. But at the same time they did not want to sidetrack the peace process by having the Russians housed in occupied territory, thereby alienating the Arabs and undermining the peace process.

Arab criticism was already high from an earlier loan guarantee granted Israel. In October 1990, Washington had agreed to provide Israel with $400 million in loan guarantees for the Russian immigrants to be housed within the frontiers of Israel. But it quickly became obvious that Israel was cheating on its written promise not to use the money to build housing in the occupied territories. Although Israel denied any wrongdoing, a report by its own Housing Ministry on March 3, 1991, revealed that plans called for more than 10,000 immigrants to be located in housing in the occupied territories. 3

Later, a study by the General Accounting Office reported that Israel's pledges had been meaningless. 4 Democratic Senator Robert C. Byrd of West Virginia, chairman of the Senate Appropriations Committee, summed it up succinctly by observing that trying to keep Israel from using the $400 million in loan guarantees in the occupied territories was like "an exercise in building a paper dam. The money that Israel borrowed under the guarantee program went straight into the Israeli treasury and immediately lost its identity." 5

The loan guarantees emerged as a test of strength between Shamir and Bush.

It was within this context of conflicting currents that Baker made the Bush administration's major effort to bring Arabs and Israelis to the negotiating table at Madrid later in the year. In order to defuse the loan guarantee issue, he got Israel to delay its official request for the $10 billion package until late summer. The Arabs were further reassured when Bush and Baker let it be known privately and publicly that if any new loan guarantees were to be granted they would be linked to a commitment by Israel not to use the money in the occupied territories. …