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The United States reapproved its Israel loan guarantees program for 2010-2011 in the annual meeting of the Joint Economic Development Group. The approval is subject to Israel's meeting fiscal targets and implementing economic reforms in the 2009-2010 state budget, the Finance Ministry said yesterday.

The Israeli delegation to the meeting in Washington was led by Finance Ministry Director General Yarom Ariav. The U.S. representation was headed by Andrew Baukol, Acting Assistant Secretary for International Affairs at the U.S. Treasury, and David Nelson, Deputy Foreign Secretary in the Bureau of Economic, Energy and Business Affairs.

In 2002 the U.S. approved a package of $9 billion in loan guarantees, where Israel could sell bonds internationally with the backing of the U.S. to help Israel deal with a recession caused by a global downturn and a wave of Palestinian suicide bombings. Over the years the U.S. extended the final date by which the guarantees may be utilized, to 2011. The guarantees have been instrumental in sovereign rating upgrades by credit rating agencies.

Under the agreement signed earlier this week in Washington Israel will be able to use up to $3.2 billion of the guarantees in 2009, after already issuing $4.1 billion in bonds backed by the U.S. and a $1.1 billion deduction for Israeli settlement building and concerns over the West Bank separation fence. Another $333.3 million will be released in 2010 and another $333.3 million in 2011 if Israel meets its fiscal targets.

Under the deal Israel must meet a 2009 budget deficit target of 6% of gross domestic product in 2009 and 5.5% of GDP in 2010, as well as keeping fiscal spending to 3.05% above the 2008 spending level in 2009-2010, and to 1.7% above 2009 levels thereafter.

Those targets are the basis of the 2009-2010 budget, which the Knesset must approve within the next two weeks.

The agreement provides for reducing the amount of the guarantees for activities "the President of the United States determines are inconsistent with the objectives and understandings reached between the United States and State of Israel regarding implementation of the loan guarantee program," as in the $1.1 billion deduction for settlement building and the separation barrier.

Israel must also present a road map for a new, medium-term fiscal rule that would guide spending growth and deficits through 2015. Progress on reform of the Israel Lands Administration and the privatization of state-owned seaports and the electricity sector must also continue. Discussions on the adoption of U.S. standards for food imports to Israel will continue.

The U.S. and Israel agreed to expand a partnership in energy and technology research and development activities. In 2010 Israel will be required to improve intellectual property rights protection mechanisms.

"Reapproval of the loan guarantees shows significant faith in Israel's economy by the U.S. government," Ariav said. "It is extremely important to maintain responsible economic and fiscal policy, both to deal effectively with the economic crisis and to maintain the faith that the U.S. government has in Israel."

The Joint Economic Development Group is an annual economic forum initiated in the mid-1980s, as a platform for bilateral professional discussions. This year's meetings began earlier this week with Ariav's review of Israeli economy and the government's fiscal policy. The delegations exchanged reports on how their respective countries were dealing with the global economic crisis. The U.S. delegation praised Israel's economic performance and fiscal discipline in recent years.