nicnt (not just Israel) receiving a guarantee.rnI’he percentage that is scored is normallyrnset by an interagency committeernchaired by the Office of Managementrnand Budget and could be as low as 2 orrnas high as 12 percent of the total loanrnamount. Pennv-pinching OMB DirectorrnRichard Darman sought a “score” of 8 torn9 percent. His more politically sensitivernsuperiors in the White House settledrnfor 4.5 percent or $90 million from thernUnited States budget each year that $2rnbillion is disbursed. Israel, of course, isrnalso sensitive (to American anti-foreignrnaid sentiment) and offered to pay thern$90 million from its funds each year.rnThose dollars actually come in fungiblernfashion from the over $3 billion inrnAmerican assistance that is annually appropriatedrnfor Israel.rnA United States government guaranteernmeans Israel can borrow from privaternlenders at tlie lowest possible interestrnrate, i.e., the rate the United Statesrnitself would be charged. That is a crucialrnpoint because if Israel had to borrowrnon its own account, the interest raternwould be considerably higher. Israel’srncredit standing in the view of most financialrninstitutions is middle grade (B orrnC) at best—even lower if political riskrnis factored into the evaluation.rnWith such an unattractive credit rating,rnis there a danger of default? Andrnwhat will happen if Israel is later unablernto repay the loans we guarantee? Therernarc two possibilities. Ideally, the creditorsrn(bond holders or banks) may agreernto reschedule payments, canceling orrnstretching out the original loan terms.rnThat is what has happened in somernLatin American and Eastern Europeanrncountries with private debt not guaranteedrnb- the United States. In the Israelirncase, however, the creditors will morernlikclv send the bill to the guarantor,rnmeaning the United States will bernobliged to pawrnThat may happen even without technicalrndefault. IJnder present law Israelrndoes not face creditors alone. ThernCranston Resolution stipulates thatrnAmerican economic aid for Israel in anyrnyear will be no less than the amount ofrnloan principal and interest that it mustrnrepay to the United States that year. Inrneffect, the United States is currently repayingrnIsrael’s past indebtedness withrnnew aid dollars. While it is not certainrnthat the new guaranteed loans will alsornbe under this requirement, it is possiblernthat the United States will followpastrnpractice and oblige itself to increasernaid to Israel in order to cover their “repayment.”rnSome have argued that the Americanrneconomy will benefit from purchasesrnhere that Israel makes with the guaranteedrnloan money. That certainly shouldrnbe the case; it is a basic principle of foreignrnaid that money sent abroad shouldrnbe spent here if at all feasible. Aid tornIsrael is not, however, administered inrnthe same way as assistance to otherrncountries.rnTherein may lie the answer. TreatingrnIsrael like every other AID (Agenc}’rnfor International Development)-recipientrnnation might be the easiest way tornassure that the guaranteed loan monc)’rnis, in fact, spent as we desire, in thernUnited States when possible and nexerrnin the occupied territories. Rather than,rnas now, writing an annual cheek andrnhanding it over to the Israeli governmentrnwith little or no accountability, we couldrnestablish a formal AID Mission in Israelrnand deliver and monitor funds as projectrnaid. That procedure is well establishedrnin all other AID-reeipient countries,rnbut there is currently no AIDrnAlission in Israel.rnIf there were, a hundred or so AIDrnofficers and several times that many privaternAmerican contractors would helprnwrite project proposals and inspect plansrnbefore disbursing funds. Housing projects,rnvocational education schemes, andrninfrastructure work would all be carefullyrncontrolled. Nonproject money forrnbalanee-of-payments relief would bernsubject to Jerusalem’s agreeing to specificrneconomic reform measures, suchrnas ending uneconomic subsidies andrnselling government-owned enterprises.rnIn other words, we would Egyptianizernthe Israeli AID program. (Rather thanrncope with A I D ‘ S regulations and bureaucracy,rnIsrael might well decide itrnpreferred to abandon the idea of buildingrnany more settlements.)rnAid to Israel, like aid to Egypt andrnother traditional major recipients, isrncostly in its budgetary impact on thernUnited States. Our self-imposedrnobligation to keep filling the coffers ofrnthese “entitlement” countries means wernhave less with which to assist newrndemocracies or strife-torn nations inrnEastern Europe or Africa—or needyrncommunities here. It also means thernregular recipients have a reduced incentivernto reform their statist, heavily subsidizedrneconomies.rnThe fundamental point is that aid, inrnwhatever amount or form, is only arnshort-term answer to Israel’s se’ere problemsrnof maintaining economic viabilityrnand absorbing refugees from abroad.rnThe sensible answer for Israel’s presentrnplight is to forge a new course: reducernpolitical risk (and defense outlays) andrngenerate massive private investment byrntrying harder to fit into the neighborhood.rnIn time, regional integration canrnbring trade and cooperation. It’s thernroute the rest of the world is taking—rneven South Africa, Iran, and the formerrnSoviet Union.rnThe essential precondition, of course,rnis peace. Making peace, even on lessrnthan ideal terms, must be at the top ofrnthe Israeli agenda. The decisions thatrnCongress and the new Clinton administrationrnmake should also be designed tornpush peace as a priority—ahead of domesticrnpolitics. American economic interestsrndemand no less.rn—Henry PrechtrnI development Officer-. The Rockford Institute, publisher olrn( hronicles, seeks an experienced fundraiser skilled in personalrn•’ intacts and proposal writing. Letter, resume, and salarv needsrnI’.: President, The Rockford Institute. 934 North Main StreetrnKockford, Illinois 61103.rnFEBRUARY 1993/7rnrnrn