Treasury: U.S. Aid to Be Only $1-2 Billion

Based on reactions from top U.S. officials, the emergency aid designated for Israel will fall short of expectations, according to treasury estimates.

The final sum will apparently be between $1-2 billion, far short of the Israeli request for $4 billion in civilian and military aid. Israel has also requested $8 billion in loan guarantees, which would enable the government to raise capital on international markets at almost the same (lower) interest rates that the U.S. government enjoys.

Until recently, the prime minister's bureau chief, Dov Weisglass, had led the team negotiating with U.S. Now the newly appointed finance minister, Benjamin Netanyahu, is expected to take over.

Since the scope of the military aid will be limited, the guarantees will probably be granted in full. Israel also received $10 billion in loan guarantees after the first Gulf War, in 1991, which it used to raise American-backed capital on the international markets from 1991 to 1993 in order to finance the immigration of Jews from the former Soviet states.

The guarantees would drastically reduce the government's cost of borrowing. The current gap between interest rates Israel and the U.S. pay on government bonds is 2 percentage points. The guarantees could reduce that gap to 0.2 percentage points, saving Israel hundreds of millions of dollars.