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Calcalist: Settlers Take 75% "Haircut" on Government Loans (i.e., don't pay back)

An article by Shaul Amsterdamski in today's edition of the Calcalist - an Israeli business daily linked to Yedioth Ahronoth - reports on a remarkable phenomenon: the variety of "loans" made by the Israeli government to settlements and individual Israeli settlers, either with a formal or informal understanding that part, most, or even all of the loan would never be repaid.

The original article (in Hebrew) is available here. Includes here is a portion of the article, as translated into English by Israel News Today.

Settlers Receive 75% Haircut on Loans They Took from State

Calcalist (p. 10) by Shaul Amsterdamski -- The overall sum of money that the Jewish Agency's Settlement Division, which is the government's executive branch for construction and development in Judea and Samaria (and formerly in the Gaza Strip as well), gave in loans to settlements and settlers, came to NIS 1.2 billion. That is the cumulative sum that includes loans that the Settlement Division gave between 1978 to 2011.

The Settlement Division offers settlements and settlers three types of loans. The first is a loan for the purpose of purchasing manufacturing equipment, such as machinery, and it is given for a 30-year period, at 3% interest plus the Cost of Living Index. The recipients of these loans begin to pay back the loan after only ten years, and the beneficiaries need only return 25% of the sum of the loan in 20 annual payments, while the remaining 75% turns into a grant at the end of that period, and need not be paid back.

The second type of loan given by the Settlement Division is a loan to build infrastructure. The Settlement Division grants these loans to the settlements themselves, for a 37-year period. The settlements only begin to pay back those loans after seven years, at just 2% interest plus the Cost of Living Index.

The last type of loan is loans that are given to settlers individually, and they are designed to meet construction and housing needs. But, as the small clause cited in Explanation 5(b) on page 47 of the Israeli government's fiscal report for 2012 notes, a significant number of those loans were given with no intention of ever collecting the debt.

Or, as the accountant general wrote in the fiscal report, "Up until 2011 loans were given for construction. Those loans were not recorded in previous years, and the manner of registration and management has not been regulated yet. Moreover, terms of repayment have yet to be determined." Loans that are given without establishing the terms of repayment are exceptional--if not altogether nonexistent--in the free market, which gives rise to the explanation that those loans were given without any intention of ever having them repaid.

But that isn't all, According to the fiscal report, "The collection over the years of loans that that were given by the Settlement Division were negligible or completely nonexistent." In other words, the Settlement Division handed out money to settlers in the form of loans--public funds that come out of the state budget--and neither collected those loans nor intended to do so. In practice, according to the report, the entire outstanding sum owed was classified as a debt that was most likely uncollectable.

An examination by the Finance Ministry found that out of the NIS 1.2 billion that the Settlement Division handed out in loans to the settlers and settlements, only NIS 200 million has been collected (16%). As of the end of 2012, there remained NIS 275 million in outstanding debts that still remained to be collected at future dates. Most of that money is earmarked for collection in arrangements for defaulted loans, which means that the entire sum is not expected to find its way to the state's coffers.

Nearly half of the total sum of loans--NIS 630 million that was given to settlers in the Gaza Strip and northern Samaria--were written off completely by a decision that was made by the previous government, the second Netanyahu government, in February 2012, following up on a previous decision by the Olmert government. [...]