Israel:

U.S. Loan Guaranties for Immigrant Absorption

NSIAD-92-119: Published: Feb 12, 1992. Publicly Released: Feb 21, 1992.

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Pursuant to a congressional request, GAO reviewed the $400-million housing loan guaranty program authorized for Israel to help it cope with the housing needs of Soviet immigrants, focusing on: (1) the impact of the guaranties on Israel's debt servicing capabilities; (2) whether Israel used the $400-million loan guaranty in accordance with applicable agreements and understandings; (3) whether Israel is offering Soviet Jewish immigrants special incentives or subsidies to settle in occupied territories; and (4) whether Israel's basis for estimating the future immigration of Soviet Jews is reasonable.

GAO found that: (1) Israel is expected to certify in February 1992 that it used the loan guaranty to finance about 12,300 loans valued at $425 million, as consistent with the provisions of the guaranty program; (2) although Israel encourages settlement in the occupied territories, it does not direct or require Soviet immigrants to settle there; (3) the Israeli government has reasonably estimated that one million Soviet Jews will immigrate to Israel during the current wave; (4) if the United States provides the additional $10 billion requested by the Israeli government in loan guaranties, Israel will probably be able to fully service its external debt and continue its past record of payment; and (5) the additional loan to Israel involves more risk, but that risk could be minimized if it fully implements its major absorbtion plans.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Congress authorized $10 billion in loan guarantees for Israel but did not require U.S.-Israeli JEDG certification. Instead, Congress directed that Israel and the United States continue to engage in consultations concerning economic and financial measures, including structural and other reforms.

    Matter: If Congress decides to authorize the $10 billion in loan guaranties for Israel, to be disbursed in $2-billion annual increments, it may wish to consider requiring that, before the annual disbursements of the loan guaranties, the U.S. component of the U.S.-Israeli Joint Economic Development Group certify that Israel has: (1) made satisfactory progress in implementing needed structural reforms; and (2) followed the absorption plans' strategy and not significantly increased nondefense public sector employment or public works projects.

  2. Status: Closed - Implemented

    Comments: Congress authorized $10 billion in loan guarantees for Israel and required Israel to pay an annual loan guaranty origination fee equal to an aggregate of the estimated loan loss reserves (set by OMB) and administrative expenses incurred by AID.

    Matter: If Congress decides to authorize the $10 billion in loan guaranties for Israel, to be disbursed in $2-billion annual increments, it may wish to consider requiring that, at the time of each disbursement of loan guaranties, Israel either: (1) pay a fee to the U.S. Treasury in an amount equal to a set percentage of the loan loss reserves the Office of Management and Budget sets aside for the disbursement; or (2) place in escrow at the U.S. Treasury an amount equal to the loan loss reserves that the Office of Management and Budget sets aside for the disbursement.

 

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