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Clinton Lacks Economic Leverage Over Israel in Settlements Dispute

By Thomas W. Lippman
Washington Post Staff Writer
Thursday, December 19, 1996; Page A30

Israeli Prime Minister Binyamin Netanyahu can risk President Clinton's disapproval by expanding Jewish settlements in occupied Arab territories because Clinton lacks economic leverage over him that President George Bush had over a previous conservative Israeli government, U.S. officials and independent analysts said yesterday.

When Bush wanted to rein in the ambitious settlement plans of Prime Minister Yitzhak Shamir — who, like Netanyahu, led the conservative Likud party — he rejected Israel's request for $10 billion in U.S. loan guarantees.

But since then the loan guarantee program has been created and implemented, and is now in its fifth and final year. Clinton has already approved the final installment, for the fiscal year ending next Sept. 30.

Moreover, Clinton restored to the fifth year's installment $247 million in loan backing that could have been deducted to punish Israel for expanding settlements. The loan guarantee legislation provides for dollar-for-dollar deductions from the loan guarantees for money used by Israel to finance settlements activity.

Clinton said Monday that the new Israeli plan to stimulate settlements through subsidies and tax breaks "cannot be helpful in making peace" and would preempt a solution of an issue that Israel and the Palestine Liberation Organization have agreed to resolve through negotiations.

His remarks should not have come as a surprise because they echoed comments he made last July, when he responded to reports of a possible increase in settlement activity by saying he did not want "to blame [the Israelis] for something they haven't done yet." He added that he expected Israel to "adhere to the agreements it has already made" on the issue.

Nevertheless, Clinton's criticism stirred dismay in Israel, and prompted two senior Republicans in Congress to assure Netanyahu they stand behind him.

"There are voices who insist that it is incumbent upon the state of Israel to make all the sacrifices for peace. Do not count us among such people," Senate Foreign Relations Committee Chairman Jesse Helms (N.C.) and House International Relations Committee Chairman Benjamin A. Gilman (N.Y.) said in a letter to Netanyahu made public yesterday.

"The state of Israel is a political, strategic and moral ally of the United States in the Middle East," their letter said. "In a region where state sponsorship of terrorism is rife, elections are few and far between and anti-Americanism is a byword, you are a constant and a trusted friend. Those facts are immutable, and cannot be altered by changes in government, either in Washington or Jerusalem."

Netanyahu has strong support in Congress, which gave him a standing ovation when he addressed a joint meeting last summer. Members have said there is virtually no chance Congress would reduce the $3 billion annual U.S. aid commitment to Israel.

"The question is, what did [Netanyahu] actually do?" said a GOP staff aide on Capitol Hill. "When you got down to brass tacks, it's basically just reduced-rate mortgages," the aide said. "It's not as if they were paying settlers to go out to confront the Palestinians," which is exactly how the settlement subsidy decision has been depicted by Arab analysts.

The story of the loan guarantee program mirrors the ups and downs of U.S.-Israel relations in this decade.

Israel wanted to raise $10 billion to help cover the costs of housing, roads, schools and other expenses involved in resettling tens of thousands of Jewish refugees from the former Soviet Union. With a guarantee that the United States would cover any loans Israel did not repay, Israel could borrow from commercial lenders at favorable rates.

Shamir's government also wanted to construct large numbers of Jewish settlements in Arab East Jerusalem and the West Bank to cement the Jewish claim to the territories, seized by Israel in the 1967 Middle East war.

But Bush, whose administration was trying to promote Arab-Israeli peace talks, objected to the settlement plan and threatened to veto loan guarantees unless Israel promised not to use the money for settlements. In the end the loan guarantee program was approved with a compromise amendment requiring that each $2 billion annual installment be reduced by the amount that Israel spent on infrastructure and building of settlements in the territories. In fiscal 1994, for example, the commitment was reduced by $437 million.

Meanwhile, Likud was ousted from power by a Labor government headed first by the late Yitzhak Rabin and then by Shimon Peres. The Labor government sharply curtailed the construction of new settlements, and concluded a peace agreement with the Palestinians.

Labor and its supporters in the United States argued successfully that money spent on infrastructure development in the territories was beneficial to the Palestinians. As a result, when the State Department calculated that the loan guarantees for fiscal 1996 should be reduced by $303 million to offset spending in the territories, Clinton exercised his authority under the loan guarantee legislation to restore all but $60 million.

He made a similar decision for the current fiscal year, the last one of the guarantee program. On Sept. 30, he restored all but $60 million of the $307 million that would have been cut, finding that "it is important to the security interests of the United States" to approve the commitment.

Now the Israeli political wheel has turned again — Labor out, Likud back in — but the loan guarantee program is no longer at issue.

© Copyright 1996 The Washington Post Company

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