169. Memorandum of a Conversation, Department of State, Washington, September 20, 1960, 11:30 a.m.1
SUBJECT
- Aid to Israel
PARTICIPANTS
- His Excellency Levi Eshkol, Israel Minister of Finance
- Mr. Zvi Dinstein, Comptroller of Foreign Exchange, Israel Ministry of Finance
- His Excellency Avraham Harman, Ambassador of Israel
- Mr. Aryeh Manor, Economic Minister, Embassy of Israel
- The Acting Secretary
- NEA—Donald D. Kennedy
- L—Robert L. Krones
- NE/E—Enoch S. Duncan
Mr. Eshkol opened the meeting by thanking the Acting Secretary for his response on subjects raised in Mr. Eshkol’s visit a year ago, particularly with respect to DLF financing for water development.2 Now, Mr. Eshkol said, he had a very serious problem and he saw no way out except to ask for increased United States assistance. The Israel Ministry of Defense was pressing for more than double previous expenditure levels. While as Minister of Finance he resisted increases that might be wasteful, he must admit that the security requirements were considerable; also he was in a difficult position because the Prime Minister was Minister of Defense. Israel’s economic position had been improving, including accumulation of substantial foreign exchange reserves. The Prime Minister has urged release of some of [Page 373] these funds to meet Israel’s urgent security needs, but Mr. Eshkol observed that Israel had more than $500 million of foreign exchange debt, against which reserves were needed.
Mr. Eshkol said that upon his return to Israel he must prepare the budgets for the next year and would need to know what were the prospects. He wanted particularly to find a way to increase SA funds for Israel. Additional outlays of as much as $300 million in two years had been envisaged in Israel Cabinet discussions. Mr. Eshkol hoped that at least half the sums taken from economic development might be made up by United States aid. He proposed $35 million additional in SA in the coming year. Although Israel representatives were always trying to think in United States terms and had done their best to learn to utilize DLF, Mr. Eshkol felt DLF would not be an adequate source for Israel’s purposes.
Mr. Eshkol also suggested financing of private housing might be a useful channel for making substantial aid available to Israel. Israel has tens of thousands housed in slums and sub-standard housing. Savings and loan groups are in existence; and if funds could be made available to them, the Israel Government could free corresponding amounts of its own resources for other requirements.
Mr. Dillon recalled that, as he had mentioned to Mrs. Meir, the Prime Minister, and the Ambassador, the United States was always extremely interested in Israel’s growth and had contributed substantially to assist that growth. Aid in USFY 1960 was about $60 million. In considering assistance, the United States must, of course, take into account the overall economic situation in Israel. Provision for security requirements must necessarily be a decision for the Israelis themselves and the United States has confidence in Israel’s ability to make appropriate decisions in this regard. In view of Israel’s estimate of the effects of its economy, we might consider additional assistance in order and would in that case be willing to consider how this could be done. There did not appear to be much leeway in PL 480. SA was most difficult from the United States viewpoint. The appropriation for FY 1961 was $15 million less than last year and requirements are increasing. It would not appear feasible to consider an increase in SA. DLF, therefore, appears to be the best place for Israel to seek assistance. In FY 1960 DLF assistance was $15 million. This year, Mr. Dillon felt, Israel might do considerably better. He understood two applications totalling $23 million had been filed with DLF the previous day. Mr. Dillon understood from Mr. Kennedy that these reflected a considerable degree of competence in casting them in terms relatively suitable for DLF consideration. DLF had not, of course, had time to examine the applications as yet. In general, Mr. Dillon said, an effort would be made to move these as rapidly as possible and cut down the normal period of time for consideration. He also hoped that DLF could consider [Page 374] financing Israel’s projects on a sufficiently long enough term basis to avoid prejudice to Israel’s foreign exchange position. Mr. Dillon observed that Israel was also obtaining Eximbank financing, notably for jet airliners. Exim financing such as this might be regarded as outside the problem area of additional aid. DLF could be looked to as the major source of assistance. The Department would try to help follow applications and expedite them when indicated. Mr. Dillon said he appreciated that speed in decision on Israel’s DLF proposals was related mainly to requirements for planning rather than to execution of projects.
Mr. Eshkol said he had reservations regarding DLF and did not see how Israel could present plans for more than $30 million during the current fiscal year.
Mr. Dillon said he understood that projects totalling about $50 million had been mentioned and Mr. Manor agreed that this had been the case. Mr. Dillon felt that if the DLF loan approvals reached about $40 million during the year, this would perhaps meet Israel’s requirements, being $25 million more than in FY 1960.
With respect to housing, Mr. Dillon said there had been some change in aid legislation to permit more activity in this field but there was still the implication that United States aid should not be devoted to basic financing of housing. It was more a question of stimulating and facilitating institutional development to encourage housing. In the case of Israel there have also been political objections to aid for housing because of the immigration issue. The extent to which this still applied in view of reduced immigration would have to be examined. He could give no indication of what the outcome would be; however, suggestions relative to housing were certainly worth exploring and possibly the GOI would provide us with a paper on this. Mr. Manor said that he would do so.
Mr. Eshkol reverted to the question of grant aid, asking if some allocation might not be made from the contingency fund. Mr. Dillon responded that he did not at this time know exactly how much money was available. He would not want to make draw-downs on contingency funds until December. Allocation of some funds from the contingency would then be considered for special requirements in different parts of the world. Some funds would have to be retained, of course, for emergency requirements that might arise in the last half of the year. In response to further question from Mr. Eshkol, Mr. Dillon said the situation could be examined at mid-year in the light of the status of the contingency fund.
Mr. Eshkol commented that he was endeavoring to propose a variety of means whereby United States aid could be channeled to Israel. He noted the condition of the United States steel industry with large inventories and wondered if perhaps 100,000 tons of steel might [Page 375] be provided for Israel for fabrication in Israel plants. He agreed this appeared appropriate for Exim consideration but said Exim terms would be too short. As another possibility, Mr. Eshkol wondered if arrangements might be made for Israel to buy for local currency 2,000 milk cows as agricultural surplus. Mr. Dillon remarked that he did not believe there was any provision for such a transaction.
Mr. Eshkol recalled the extensive relations Israel has developed with the African countries and asked if there might not be some way Israel could receive United States aid in this connection.
Mr. Dillon commented that Israel had indeed done good work in Africa for the whole free world and for itself. He said that it was amusing that while he was in Ecuador a few days ago Israel had signed an agreement for aid to that country. An Ecuadorian representative had asked him if it was appropriate to accept assistance from Israel. Mr. Dillon said he assured the gentleman that it was. Ambassador Harman observed that the agreement was for economic cooperation not aid. Mr. Dillon commented that the Department spoke of “Mutual Security” but Congress called it “foreign aid”.
- Source: Department of State, Central Files, 784A.5–MSP/9–2060. Secret. Drafted by Duncan and approved in U on September 23. A briefing paper for the conversation is ibid., 033.84A11/9–1960.↩
- See Document 93.↩