Israel, U.S. loan guarantee clouded by security barrier

JERUSALEM -- Israel and the U.S. have signed a $9 billion dollar loan guarantee agreement clouded by Israeli plans for a security barrier cutting deep into the West Bank, a Finance Ministry official said Thursday.

U.S. officials said last month they were considering reducing the loan guarantees by the same amount Israel spends on any sections of the disputed, partially built barrier that extend beyond the so-called "Green Line" marking Israel's eastern border.

Israeli officials and the U.S. Agency for International Development signed the agreement Wednesday, Israel's Deputy Accountant General Eldad Fresher said.

He said the agreement "requires Israel to report to the U.S. on the expenditures it makes over the Green Line and defines how they will be dealt with." He declined to say whether that meant that every dollar spent on the security barrier beyond Israel's border would be subtracted from the value of the loan deal.

Some sections of the 370-mile-long barrier are planned to plunge deep into the West Bank, cutting off towns and blocking Palestinians from jobs in Israel or other parts of the West Bank.

The first 90-mile section of the fence was complete in July.

The loan guarantee is regarded as crucial to stabilizing the Israeli economy; per capita income has fallen from $18,000 to about $15,000 per year since the outbreak of Israeli-Palestinian violence in September 2000, and unemployment is approaching 11 percent.

Israel plans to raise the first $3 billion backed by the guarantee later this year.

As part of the loan deal, Israel promised the United States it would carry out a series of economic reforms and reduce its 2004 budget deficit to three per cent of GDP. In 2003 the budget deficit is expected to reach 5.5 percent.