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Thursday, 24 October, 2002, 05:55 GMT 06:55 UK
Israel to seek US loan guarantees
An elderly Palestinian man walks past a checkpoint and a nervous Israeli soldier
Israel's economy has been hit hard by ongoing conflict
Israel is working on a plan to ask the US for billions of dollars in loan guarantees in a bid to revive its flagging economy.

The country's finance minister Silvan Shalom may ask the US government for the guarantees as part of a larger aid program to be submitted at the beginning of 2003.

The reports came as Israel's finance ministry submitted its 2003 budget to parliament.

It showed a cut in government spending as the country struggles to recover from a deep recession and rising defence costs.

Call for help

The finance minister said that Israel had discussed the issue of loan guarantees with US officials last week.

"The issue of loan guarantees has been worked on for a while," Mr Shalom told reporters.

"We are in the beginning stages and nothing is concrete yet. We are looking at all options."

Loan guarantees would make it easier for Israel to raise funds and stimulate investment in its recession-hit economy.

The last two years have seen the country battered by both the bursting of the tech-boom and the rising cost of fighting the Palestinian uprising, pushing the country into its worst recession for 25 years.

Isreal sea-side scene
Israel's tourism industry has been hit

Mr Shalom would not put a figure on the possible guarantees Israel was seeking, although newspaper reports have suggested they could total $10bn (6.4bn).

And in return?

In 1991, Israel received guarantees for loans of $10bn to help it cope with the influx of immigrants from the former Soviet Union.

However, the conditions attached to the 1991 loans were that Israel would not spend any of the money raised in Palestinian territories.


Passing the budget and keeping to the budget are the most important things now

Silvan Shalom, finance minister

There are now concerns that in return for the latest loan guarantees, the US will impose conditions, in particular with regards to a possible attack on Iraq.

Tightening belts

Israel's finance minister has also urged parliament to approve the latest budget, aimed at giving the economy much-needed stability.

"Passing the budget and keeping to the budget are the most important things now," Mr Shalom said.

If the budget fails, the country's credit rating could be at risk - making the task of raising money yet more difficult.

Israel's economy shrank by 0.9% in 2001 and is expected to contract by a similar amount in 2002. Three years ago, it was growing at a rate of 6%.

The 2003 state budget is the country's largest ever at 269.9bn shekels ($57bn).

But it includes a proposal to cut defence spending by 2.6% and to also reduce social spending in an effort to raise economic growth to 1%.

The budget has so far met with little support from opposition parties and coalition partners.

See also:

25 Sep 02 | Business
22 Sep 02 | Middle East
29 Aug 02 | Business
21 Jun 02 | Business
09 Jun 02 | Business
18 Feb 02 | Business
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