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Israel Can Save Billions
By Refinancing Debt to U.S.
According to a recent study, Israel can save $1.5 billion
by private refinancing
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WOLF BLITZER
Special to the Jewish News
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32
FRIDAY, OCT, 16, 1987
COUPON
FURNACE
1
CLEANING & TUNE UP SPECIAL
$
38
Includes:
10 Point Check
J
A
major New York fi-
nancial house has
completed a study
showing that Israel will save
some $1.5 billion by private-
ly refinancing half of its ex-
isting $11 billion debt to the
United States government.
The report by Solomon
Brothers, the huge invest-
ment firm, shows a higher
saving for Israel over the life
of the existing loans than
earlier projected by Israeli
Finance Ministry studies.
Finance Minister Moshe
Nissim, who recently visited
the United States to promote
the overall debt restructuring
scheme, wants to refinance
eight outstanding notes to the
U.S. Government totalling
$5.45 billion.
Most of those loans were
committed during the Carter
Administration when interest
rates were relatively high.
Some of the Israeli loans, for
example, carry a 14.5 percent
annual rate.
Israeli officials believe that
they now can obtain signifi-
cantly lower interest rates by
refinancing the loans on the
private New York financial
market. At prevailing rates,
for example, they believe they
can obtain a 9.75 percent rate
for short-term notes and a
10.4 percent rate for long-
term notes.
But those rates, they said,
would require a guarantee of
repayment by the U.S. Gov-
ernment. If Israel were ever
to default on repayment, the
United States would make up
any shortfall. Without such a
guarantee from Washington,
the private financial market
in New York would charge
Israel significantly higher in-
terest rates.
The U.S. Government, in
passing the initial foreign aid
legislation, has already guar-
anteed that Israel will repay
the existing loans to the U.S.
Treasury. What is necessary
now, United States and
Israeli officials said, would be
for the Congress to pass new
legislation transfering the
guarantees to the private
market.
Israel would then obtain
the new funds from New York
and immediately repay the
$5.45 billion debt to the U.S.
Treasury. No additional ap-
Finance Minister Moshe Nissim wants to refinance high interest loans
propriation legislation would
be required nor would there
be any increase in the federal
budget.
Israeli officials and their
political backers on Capitol
Hill have in recent weeks lob-
bied hard to generate support
among key House and Senate
members. A major break-
through was achieved when
Democratic Senator Lawton
Chiles of Florida, Chairman
of the Senate Budget Com-
mittee, endorsed the scheme.
Chiles is now working
closely with Democratic
Senator Daniel Inouye of
Hawaii and Republican Sen-
ator Bob Kasten of Wisconsin
to push the required transfer
of guarantee legislation
through the Senate in the
next eight weeks, before the
congressional recess. Inouye
is chairman of the Senate Ap-
propriations Subcommittee
on Foreign Operations and
Kasten is the ranking minori-
ty member of the panel.
There is also strong support
in the House, but pro-Israeli
backers expressed fear that
Democratic Representative
David Obey of Wisconsin,
chairman of the House Ap-
propriations Subcommittee
on Foreign Operations, might
oppose the initiative.
In an interview, Obey said
he had serious reservations
about the entire scheme. He
expressed fear that there
would indeed be a serious im-
pact on the federal budget
deficit and that the action for
Israel would inevitably lead
to pressures on the United
States to permit similar
"favors" for other countries,
like Egypt, Greece and
Turkey.
According to informed
sources, a very large debt
restructuring scheme like the
one proposed by Israel has
been approved only once
before. That was when the
Rural Electrification Ad-
ministration, a private
farmers' cooperative in the
Midwest, refinanced its debt
to the U.S. Government.
The proposed legislation for
Israel is being written to
allow other countries with
large U.S. debts to also follow
suit. But many members of
the House and Senate are
wary of the credit-worthiness
of such heavily indebted
countries as Egypt and. Tur-
key. Chiles, for example, said
he would favor the refinan-
cing plan for Israel only if it
did not become a precedent
for other countries.