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High Interest Rate
Hurts Israel Economy

JAMES D. BESSER

Washington Correspondent

T

he big story in town
may be the Reagan-
Gorbachev summit,
but another issue crucial to
Israel is generating a strong
undertow of controversy on
Capitol Hill.
The issue is the restructur-
ing of Israel's massive debt to
the United States, and a good
deal of the controversy re-
volves around Rep. David
Obey (D-WI), the powerful
chairman of the Foreign
Operations Subcommittee of
the House Appropriations
Committee. Pro-Israel leaders
here consider Obey a major
obstacle to congressional
plans to provide some relief
for the Israeli economy.
A secret meeting in New
York recently, held at Obey's
request in an attempt to tame
the controversy swirling
around the issue, ended
inconclusively.
The debt issue involves
some $11 billion owed by
Israel to the United States
Treasury. This money, mostly
borrowed during the heyday
of sky-high interest rates, was
borrowed under the Foreign
Military Sales (FMS) loans
program.
Now, in a significantly dif-
ferent economic climate, the
burden of a massive, high-
interet foreign debt threat-
ens to choke the fragile Israel
economy.
But the idea of restructur-
ing Israel's debt to the United
States is caught up in a web
of controversy. Two years ago,
Sen. Robert Kasten (R-WI)
and Daniel Inouye (D-HI) pro-
posed a buydown of Israel's
high interest rate, a plan kill-
ed in committee by Sen.
Lawton Chiles (D-FL) on
budgetary grounds.
The idea was resurrected
last year, but it died in the
face of Administration opposi-
tion. The Administration
came up with its own plan —
.which was rejected by pro-
Israel activists as unrealistic
for a cash-poor country like
Israel.
This is where the issue be-
comes truly complex. Rep.
Obey, who opposed the initial
debt plan in Congress, also
opposed the Administration
scheme—on the grounds that
such a plan should be legis-
lated, not just handed down
by the executive branch.
But Obey also continued to
oppose plans in Congress to
provide debt relief. Although
Obey's office repeatedly de-

clined to comment on the en-
tire affair, there were
numerous reports that the
congressman maintained
that debt relief would tarnish
Israel's image, cause prob-
lems for the U.S. Treasury
and complicate relations with
other nations.
Underlying this position,
according to some pro-Israel
activists, is the Congress-
man's general hostility to
foreign aid programs There is
also talk that Obey fears the
election-year windfall to the
federal treasury which would
result from proposed restruc-
turing plans, an influx of cash
that would work to the advan-
tage of the Republicans.
"It is a very difficult issue,
because it's difficult to assess
how a measure like this will
impact the budget and the
deficit," said a Capitol Hill
aide involved in the budget
process. This staffer insisted
that Obey's objections to debt
restructuring are based only
on budget considerations.
"He's been very consistent on
matters of the budget. If
Israel wasn't part of this
whole question, I don't think
there'd be any question about
opposing debt restructuring
of this type."
Obey's supporters also ar-
gue that the refinanced debt
could pose additional long-
term problems for Israel,
since the loans will be made
with a floating interest rate,
the same as an adjustable
rate mortgage. Under this ar-
rangement, if interest rates
soar, Israel could find itself in
even more economic difficulty.
In an effort to shore up his
support within the Jewish
community, Obey requested a
meeting with leading Jewish
figures in New York. A meet-
ing was held at the offices of
Morris Abram, president of
the Conference of Presidents
of Major American Jewish
Organizations, at which Obey
and his staff made his case
against debt restructuring —
and against the perception
that this position was based
on hostility to the needs of
Israel.
According to several re-
ports, the Jewish leaders re-
mained unimpressed.
In the meantime, the
Kasten-Inouye proposal,
which would provide debt
relief by allowing Israel to
refinance much of its high-
interest debt through private
lenders, with the U.S. govern-
ment acting as a guarantor,
advanced last week as part of
the Senate's continuing res-
olution. But the bill will end