April/May 1995, Pages 79-80

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.

But Israel's hard-line prime minister, Yitzhak Shamir, was equally determined to resist linkage. He had become Israel's leader in 1983, vowing in his inaugural speech to continue the "holy work" of establishing settlements in the occupied territories.⁶ During the summer of 1991, as Secretary of State Baker repeatedly traveled to the Middle East and bargained with Arab and Israeli in the quest for peace, Shamir left no doubt that he was determined to continue his holy work. By that time Israel was engaged in its most ambitious building campaign ever in the territories, with thousands of units going up. ⁷

Shamir was confident to the point of arrogance that the influence of the Israeli lobby in the United States was so great that ultimately Bush would succumb to Israel's wishes. Shamir said on June 12: "Settlement in every part of the country continues and will continue. They try to link the two things but no one said that aid will end. I don't think it will happen."⁸ A week later Shamir warned: "Creating such a linkage is dangerous, and I hope that the American people won't accept the linkage that the administration is trying to create between the two...Settlement momentum in [the West Bank] and Gaza is unstoppable." ⁹

Implicit in these remarks was a direct challenge to President Bush not to link the loan guarantees to Israel's settlement program. By this time the stakes involved were not only the peace process but presidential pride as well. On July 1,1991 Bush declared:

"We're not giving one inch on the settlements question...We're not going to change our position on settlements. So please, those in Israel, do what you can to see that the policy of settlement after settlement is not continued. It is counterproductive."¹⁰

The next day, Israel coldly defied Bush by increasing its settlement activities. Housing Minister Ariel Sharon dedicated a new neighborhood in Mevo Dotan in the northern part of the West Bank, saying Israel would continue expanding settlements. He added: "Jewish settlements are not an obstacle to peace, they are an obstacle to war." A Mevo Dotan settler, Yael Ben Yakov, said: "We here are the answer to Bush. The building will continue."¹¹

Nonetheless, Bush's tough remarks impressed the Arabs and the peace process began to move forward. On July 14, Syria announced it found Baker's ideas an "acceptable basis for achieving a comprehensive solution" to the Arab-Israeli conflict.¹² Five days later, five major Arab states—Egypt, Jordan, Lebanon, Saudi Arabia and Syria—officially signed on to a U.S. proposal for holding a peace conference.¹³

The only holdout was Israel. Despite heavy pressure from Washington, Shamir repeatedly found excuses why Israel could not meet with the Arabs. August turned to September and still Shamir could not be budged. Meanwhile, another crisis loomed. Shamir had agreed to delay Israel's official request for loan guarantees only until Sept. 6. As the day neared, the loan guarantees suddenly emerged as a symbolic test of strength between Shamir and Bush and, by extension, whether Israel was strong enough to continue to defy Washington's demand that it join the peace process.

It was clear that if the United States granted Israel the $10 billion in guarantees at this delicate juncture the Arabs would see it as favoritism to Israel and probably withdraw their support for a peace conference. Baker personally appealed to Shamir for a delay, but with no success. Bush then took the extraordinary action of calling the press to the Oval Office hours before Israel's scheduled presentation of its official request to plead for delay. He said debate over a loan guarantee at this time could "inflame passions," adding:

"We don't need an acrimonious debate just as we're about to get this peace conference convened. It is in the best interest of the peace process and of peace itself that consideration of this absorption aid question for Israel be deferred for simply 120 days...This is not the time for a debate which can be misunderstood, a debate that can divide."¹⁴

Despite the president's impassioned plea, Israeli Ambassador Zalman Shoval showed up at the State Department several hours later and officially delivered Israel's request to Secretary of State James Baker.

The battle was now joined. Major Jewish groups led by AIPAC, the American Israel Public Affairs Committee, vowed they would call a crusade of prominent Jewish Americans to travel to Washington to personally lobby congressmen. The Religious Action Center of Reform Judaism urged rabbis to use their pulpits during the Rosh ha-Shanah New Year's high holy days, which began Sept. 9, to mobilize grassroots support for the loan guarantee.¹⁵

The confrontation came on Sept. 12. More than 1,000 Jews from around the country descended on Capitol Hill personally to lobby lawmakers. President Bush retaliated by calling another news conference that same day to warn that he would veto loan guarantees if Congress insisted on approving the measure despite his plea for a 120-day delay. He also criticized the pro-Israeli lobbyists, saying:

"We're up against very strong and effective, sometimes, groups that go up to the Hill. I heard today there were something like a thousand lobbyists on the Hill working the other side of the question. We've got one little guy down here doing it...The Constitution charges the president with the conduct of the nation's foreign policy... There is an attempt by some in Congress to prevent the president from taking steps central to the nation's security. But too much is at stake for domestic politics to take precedence over peace."¹⁶

During the news conference, Bush bristled at questions implying he was not a supporter of Israel, saying:

"Just months ago, American men and women in uniform risked their lives to defend Israelis in the face of Iraqi Scud missiles, and indeed, [Operation] Desert Storm, while winning a war against aggression, also achieved the defeat of Israel's most dangerous adversary. And during the current fiscal year alone, and despite our own economic problems, the United States provided Israel with more than $4 billion in economic and military aid, nearly $1,000 for every Israeli man, woman and child, as well as with $400 million in loan guarantees to facilitate immigrant absorption."¹⁷

Bush's strong remarks brought attacks from Israeli officials. On Sept. 15, Israeli Minister without portfolio Rehavam Zeevi called Bush a "liar" and an "anti-Semite" during a cabinet meeting. The government insisted it would continue to press for the guarantees.¹⁸

A Rare Defeat

It was not until Oct. 2 that the Senate finally acceded to Bush's call for a four-month delay in considering the loan guarantees. It was a rare defeat for the Jewish lobby. Although 70 senators co-sponsored a bill to grant the guarantees—three more than necessary to override Bush's threatened veto—they did so only with the understanding that the matter would be delayed. Said an unnamed administration official: "The assumption that the pro-Israel lobby could not be beat is now gone."¹⁹

Finally, on Oct. 20, Israel's cabinet voted 17 to 3 to approve Israel's participation in an international peace conference in Madrid on Oct. 30.²⁰

But still the battle was not over. Shamir stood tough, declaring on Jan. 20, 1992, that Israel would "tell the Gentiles of the world" that nothing can stop establishment of settlements in the occupied territories. His aides said Shamir was ready to reject the loan guarantees if they meant a freeze of settlement activity.²¹

Although the Congress signaled its willingness to grant the guarantees, Bush continued to threaten a veto and the $10 billion were held up. The friction between the United States and Israel grew as elections approached in the Jewish state. Shamir's inability to gain the loan guarantees and his poor relations with Washington contributed heavily to his defeat on June 23.²²

Bush appeared to have won. But in the end he failed. By the summer of 1992 Bush's own campaign for re-election was in deep trouble. On Aug. 12 he granted the $10 billion package to Yitzhak Rabin even though the new prime minister insisted some settlement activity had to continue. In this Bush agreed, thus destroying his effort to link U.S. aid to settlements.

Not only did the Rabin government go on expanding settlements but in the process it practically doomed the 1993 peace accord with the Palestinians. As New York Times columnist Thomas L. Friedman wrote in early 1995: "[Rabin's] government has increased settlements in the West Bank by ten percent in two years. That's crazy. It undermines Mr. Arafat's credibility and leaves Palestinians feeling they are being duped. It's time for Mr. Rabin to draw them a line where Israel stops and they start." ²³

The Final Irony

The final irony was that it turned out Israel did not need the money anyway. By June 1993, none of the money had yet been spent and in early June a symposium was held in Tel Aviv under the theme of "What Do You Do with $10 Billion?" Although Israel had sought the guarantees on the basis of helping resettle Soviet immigrants and building new housing for them, none of the money was being planned for that use. Reported Washington Post correspondent David Hoffman:

"Israelis say it was important to win the fight for the loan guarantees as a political reaffirmation of the country's alliance with the United States. But from an economic standpoint, no one in the government is claiming any longer that the loans are 'vital' to Israel's survival. Now, the money is viewed as a nice cushion, rather than a lifejacket, and there are plans to use it to expand the country's highway system and as a pool for low-interest private business loans."²⁴

One reason the money had become less vital was because when Israel originally made its request it anticipated the arrival of 1 million Soviets. In reality, less than half that number chose to go to Israel.²⁵

It had all been a symbolic struggle to prove whether Tel Aviv or Washington would prevail. In the end, it was not Washington. Reports that the Israeli lobby could be beaten were premature.

RECOMMENDED READING:

* Ball, George W. and Douglas B. Ball, The Passionate Attachment: America's Involvement with Israel, 1947 to the Present, New York, W.W. Norton & Company, 1992.

* Findley, Paul, Deliberate Deceptions: Facing the Facts about the U.S.-Israeli Relationship, Brooklyn, NY, Lawrence Hill Books, 1993.

* Quigley, John, Palestine and Israel: A Challenge to Justice, Durham, Duke Univ. Press, 1990.

NOTES:

¹ Reuter, Washington Post, 5/6/91. For background, see Findley, Deliberate Deceptions, pp. 116-123.

² Rachelle Marshall, "To Israeli Leaders, Permanent Occupation Comes Before Peace," Washington Report on Middle East Affairs, March 1995.

³ Jackson Diehl, Washington Post, 3/11/91.

⁴ General Accounting Office, "Israel: U.S. Loan Guaranties for Immigrant Absorption," GAO/NSIAD 2/12/92, pp. 92-119.

⁵ John. M. Goshko, Washington Post, 2/20/92.

⁶ Quigley, Palestine and Israel, p. 176.

⁷ Jackson Diehl, Washington Post , 9/8/91.

⁸ Alan Elsner, Reuters, Washington Times, 6/13/91.

⁹ Jackson Diehl, Washington Post, 6/23/91.

¹⁰ Linda Gradstein, Washington Post, 7/3/91. Excerpts of Bush's remarks are in Journal of Palestine Studies, "Documents and Source Material," Autumn 1991, pp. 185-86.

¹¹ Linda Gradstein, Washington Post, 7/3/91.

¹² Thomas L. Friedman, New York Times, 7/15/91.

¹³ Thomas L. Friedman, New York Times, 7/23/91.

¹⁴ Thomas L. Friedman, New York Times, 9/7/91.

¹⁵ John M. Goshko and John E. Yang, Washington Post , 9/7/91.

¹⁶ Thomas L. Friedman, New York Times, 9/13/91.

¹⁷ Text in New York Times, 9/13/91.

¹⁸ Clyde Haberman, New York Times, 9/16/91.

¹⁹ Helen Dewar, Washington Post, 10/3/91; Thomas L. Friedman, New York Times, 10/6/91.

²⁰ Jackson Diehl, Washington Post, 10/21/91. Also see Ball, The Passionate Attachment, p. 150.

²¹ Jackson Diehl, Washington Post, 1/21/92.

²² Don Oberdorfer, Washington Post, 6/25/92.

²³ Thomas L. Friedman, New York Times, 2/5/95.

²⁴ David Hoffman, Washington Post , 6/10/93.

²⁵ Ibid.

*Available from the AET Book Club

Donald Neff is author of the Warriorstrilogy on U.S.-Middle East relations and of the unpublished Middle East Handbook, a chronological data bank of significant events affecting U.S. policy and the Middle East on which this article is based. His books are available through the AET Book Club.