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U.S. Foreign Aid to Israel:
Loan Guarantees for Israel


Foreign Aid: Table of Contents | Total Aid (1949-Present) | Military Financing


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Loan guarantees to Israel are just another way that the United States financially helps the Jewish state, but this is done without even spending one dollar. In 1992, Congress and President Bush authorized $10 in guarantees to Israel and, in 2003, a new set of loan guarantees - for $9 billion - were put in place to serve until 2012. In January 2012, this guarantee was extended a further three years to last until 2015.

Guarantees are not grants — not one penny of U.S. government funds are transferred to Israel. The U.S. simply cosigns loans for Israel that give bankers confidence to lend Israel money at more favorable terms: lower interest rates and longer repayment periods — as much as 30 years instead of only five to seven. These loan guarantees have no effect on domestic programs or guarantees. Moreover, they have no impact on U.S. taxpayers unless Israel were to default on its loans, something it has never done. In addition, much of the money Israel borrows is spent in the United States to purchase American goods.

The 1992 Loan Guarantee

Background

From 1989 to the early 1990's, approximately one million Jews people immigrated to Israel. The majority, roughly 80 percent, came from the former Soviet Union. Israel was obligated to provide these immigrants with food, shelter, employment and training. The task became even more challenging when it came to absorbing Jews from relatively undeveloped countries like Ethiopia, who often had to be taught everything from using a flush toilet to how to withdraw money from a bank. To meet these challenges, Israel invested billions of dollars and, in addition, the American Jewish community contributed hundreds of millions of dollars through a variety of philanthropies.

Still, the task was so daunting, that Israel turned to the United States for help. To put their challenge in perspective, consider that the United States — a country of 250 million people and a multi-trillion dollar GNP in 1990 — admitted roughly 125,000 refugees a year at that time. In 1990 alone, nearly 200,000 Jews immigrated to Israel.

Since 1972, Congress had appropriated funds to help resettle Soviet Jews in Israel with more $80 million earmarked for this purpose. The program, which was administered by the United Israel Appeal, payed for the costs of flights and other travel expenses for the refugees. The program also funded absorption centers, elderly housing, youth villages, intensive Hebrew training and efforts to provide permanent housing and jobs to immigrants once they complete the journey to Israel.

The Need Grows

After the Soviet Union opened its gates to emigration, the trickle of immigrants became a flood — immigration from that country skyrocketed from fewer than 13,000 people in 1989 to more than 185,000 in 1990. Israel was overwhelmed and asked for a different type of help.

The United States responded in 1990 by approving $400 million in loan guarantees to help Israel house its newcomers.

When it became clear the flood of refugees was even greater than anticipated, and tens of thousands continued to arrive every month, Israel realized it needed more help and asked the United States for an additional $10 billion in guarantees.

A Success Story

In 1992, Congress authorized the President to provide guarantees of loans to Israel made as a result of Israel's extraordinary humanitarian effort to resettle and absorb immigrants. These guarantees were made available in annual increments of $2 billion over five years. While the cost to the U.S. government was zero, Israel paid the United States annual fees amounting to several hundred million dollars to cover administrative and other costs.

By all measures, the U.S. loan guarantee program was a huge success.

Israel used the borrowed funds primarily to increase the amount of foreign currency available to the country’s business sector and to support infrastructure projects, such as roads, bridges, sewage and electrical plants. The guarantees also helped Israel to provide housing and jobs for virtually all of the new immigrants. Unemployment among immigrants, which peaked at 35 percent, has dropped to 6 percent, roughly the same rate as for the rest of the population.

Besides contributing to Israel's success in absorbing immigrants while maintaining economic growth, the loan guarantee program also sent a strong message to the private international capital markets about the confidence the U.S. has in Israel's ability to bear this potential economic burden. Consequently, Israel's credit rating was upgraded and Israel can borrow hundreds of millions of dollars in international financial markets on its own.

Guarantees FY1993-1997
(in millions of dollars)

Year

Authorized, Title VI P.L. 102-391

Reduction for Settlement Activity

"Offset" Reinstated for Security Interests

Net Reduction

Amount Available for Israel

1993
$2,000.0
0.0
0.0
0.0
$2,000.0
1994
$2,000.0
437.0
0.0
437.0
$1,563.0
1995
$2,000.0
311.8
95.0
216.8
$1,783.2
1996
$2,000.0
303.0
243.0
60.0
$1,940.0
1997
$2,000.0
307.0
247.0
60.0
$1,940.0

Totals

$10,000.0

1358.8

585.0

773.8

$9,226.2

 

The 2003 Loan Guarantees

New Demands

In 2002, Israel requested new loan guarantees from the United States to help it cope with the devastating economic crisis caused by the Palestinian uprising and unrelenting terror attacks against its citizens, as well as to prepare for the anticpated defense and economic costs associated with the U.S. war with Iraq.

In 2003, Congress approved $9 billion in loan guarantees over a three year period. As with the earlier guarantees, Israel was required to use the funds within the pre-1967 borders and the amount of the guarantees could be reduced by an amount equal to Israel's expenditures on settlements in the territories.

The loan period was initially extended one year, but Israel used only half the guarantees, so a request was made and approved by the United States to extend the period until 2011. As of January 1, 2010, Israel had borrowed $4.1 billion and roughly 25% of the total authorized was deducted ($289.5 million in 2003 and $795.8 million in 2005) for expenditures on settlements.

Another Extension

In January 2012, the State Department announced that the loan guarantees would be extended another three years to ensure that Israel is still able to borrow against the United States and build its infrastructure and economy.

"Extending the loan guarantees strengthens the international position of the Israeli economy," said Israeli Deputy Foreign Minister Danny Ayalon in response to the American extension. "[The guarantees] will allow the government to continue to raise funds at lower costs."

Guarantees FY2003-2012
(in millions of dollars)

Year

Authorized

Reduction for Settlement Activity

Amount Borrowed
by Israel

Net Reduction

Amount Available for Israel

2003
$3,000.0
$289.5
$1,600.0
$289.5
$1,110.5
2004
$3,000.0
--
$2,500.0
--
$1,610.5
2005
$1,000.0
$795.8
--
$795.8
$1,814.7
2006
$333.0
--
--
--
$2,148.0
2007
$333.0
--
--
--
$2,481.4
2008
$333.0
--
--
--
$2,814.7
2009
$333.0
--
--
--
$3,148.0
2010
$333.0
--
--
--
$3,481.0
2011
$333.0
--
--
--
$3,800.0

Totals

$8,998.0

$1,085.3

$4,100.0

$1,085.3

$9,226.2


Sources: U.S. Congressional Research Service

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