Treasury Denies It Is Avoiding U.S. Guarantees for Fear of Sanctions

Ministry says it has no plans for American program anyway

The Finance Ministry continues to deny that it has vetoed the use of guarantees provided to Israel by the U.S. government in order to avoid an embarrassing announcement by Obama's government that the guarantees had been used for investment in the territories "beyond the green line."

The treasury says it has no plan to utilize the guarantees in any case, and that its considerations are solely economic ones.

The U.S. government guarantees allow Israel to issue bonds on foreign markets with preferable terms, with the U.S. guaranteeing the debt in the event that the Israeli government has trouble repaying. During a recent visit by Finance Ministry director general Yoram Ariav to the United States, Israel received a pledge for an another $670 million in guarantees, bringing the total amount of U.S. debt guarantee to $2.7 billion.

But for the meanwhile, the Finance Ministry has no intention of taking advantage of the guarantees, even though by doing so the government would be able to save 1% in debt interest payments. This has given rise to the supposition that the ministry is abstaining from taking advantage of the guarantees out of political considerations - namely, that use of the guarantees would necessarily engender a demand by Obama's government that Israel subtract any investment attributable to the territories from the guarantee amount.

It is estimated that the U.S. government could be expected to deduct between $600 million and $1 billion attributable to investments in the "territories" - the West Bank (including East Jerusalem), Golan and Gaza areas.

The guarantee amount has grown over time as Israel continued for years to refrain from taking advantage of the guarantees. The government has preferred instead to raise debt overseas, in light of a dramatic improvement in Israel's economy that enabled the government to do so at excellent rates. Nevertheless, the economic crisis and huge increase in the national deficit have caused Israel's economic condition to deteriorate, giving rise to expectations that the American guarantees would now be utilized. And since the guarantees are due to expire in 2011, there isn't much time remaining to do so.

Accountant General Shuki Oren told TheMarker that there has been no official debate on the issue, and the guarantees have not been utilized to date out of purely economic considerations. Israel, said Oren, continues to raise debt relatively successfully, and using the guarantees could in fact cause harm by presenting Israel as a country in need of U.S. support in order to raise bond debt overseas.

Nevertheless, since Oren and other top officials do not rule out the possibility that Israel may need to do so by 2011 when they are due to expire, Israel continues to ask that they be increased. In such a case, the treasury does take into consideration that the U.S. will subtract part of the guarantees which are attributable to investments in the territories.