74. Memorandum of a Conversation, Department of State, Washington, April 22, 1959, 11 a.m.1
SUBJECT
- Aid to Israel
PARTICIPANTS
- Mr. Abba Eban, Ambassador of Israel
- Mr. Aryeh Manor, Economic Minister of Israel
- ICA—Leland Barrows
- W—Douglas Dillon
- NE/E—John F. Shaw
Ambassador Eban opened the discussion by noting Israel’s efforts to narrow its import deficit of $340 million, and to achieve better economic equilibrium. In his opinion economic indices are misleading for while Israel reserves have risen recently Israel’s debt has increased by an even larger amount. He hoped that in assessing Israel’s need for aid that requirements over the next five years might be envisaged and Israel’s need for assistance in this period viewed as a continuing and long term requirement. He also stressed that the quality of U.S. aid is important to Israel. He noted that loans, for example, are tied to projects, and PL 480 aid is subject to limitations on use. On the other hand, U.S. grant assistance does not carry the same limitations. As for the use of the $7.5 million Special Assistance grant funds in prior years the Ambassador indicated this money would not have been directed to foodstuffs if Israel had been completely free to use it as it desired. He also pointed out that defense outlays amounted to 38 percent of Israel’s budget and that in the absence of direct military assistance, which is enjoyed by some states in the area, grant economic aid was most useful.
Turning to the subject of Jordan water development, Ambassador Eban indicated Israel is not asking the U.S. to take over the planning and execution of its water program, but to help in obtaining certain equipment such as pipe and pumping and generating equipment. In fact, the note which his Embassy sent the Department some time ago on this subject was forwarded due to the importance attached by Israel to financing for this project, and to the fear that in the absence of such a note the project might “get lost” among Israeli requests for financing of cement plants and other projects.
[Page 167]The third point which the Ambassador developed related to Israel’s need for DLF assistance, and the priorities which Israel has established for projects now before the Fund. The most urgent need, he said, was for $5 million for the III. In connection with this request, he said the Embassy would submit a list of projects for which this money would be utilized since he detected a hesitancy in DLF to extend this Institution more money in the absence of a demonstrated capability of using the $5 million for which a loan is about to be consummated. Mr. Dillon said that receipt of this list should remove any doubt in the minds of the DLF as to Israel’s capabilities in using additional funds. The other projects for which the Ambassador expressed interest in DLF financing were a cement plant and a sugar mill; these were mentioned in this order.
Mr. Dillon, commenting on the Special Assistance grant aid for Israel, said the problem had been expanded out of all proportion; the Department’s thought was that Israel’s requirements could be met from DLF and/or PL 480 instead of grant funds under the Mutual Security Program. Our aim, however, was identical with that of Israel, and we desire to cooperate with Israel in meeting its economic problems and assisting it to meet the strain which will arise when reparations and compensation payments are terminated. He stated the Department has been under pressure to reduce grant Mutual Security expenditures wherever possible, and, from a strictly economic point of view, the use of grant money, whether $5 million or $7.5 million, seemed unwarranted; now, however, a psychological-political problem has arisen. We have no objection in principle, he said, to having a grant program for Israel provided funds are available. It is possible that contingency funds could be used for meeting the requirements of such a program. He thought the Congressional Committee might recommend $5 million additional in the Special Assistance account with the understanding that it would be available for Israel. One way or another, however, Mr. Dillon thought that there would be a continuation of the grant program. He reiterated, nevertheless, that he did not think there was an economic case for this program; Congressional leaders know of the Department’s views. The situation, he said, could be handled at the time the Committee acts on the authorizing legislation.
Turning to the subject of Jordan water development, Mr. Dillon indicated this was a problem now under study in the Department; however, he would be interested in the Ambassador’s views as to what would be the difference in overall cost to Israel if the project were done as now planned rather than as Eric Johnston envisaged. Ambassador Eban and Mr. Manor said the Israeli plan for expenditures in the next two years as presented to the Department would involve no additional cost since Israel proposes to use the same pipe [Page 168] and pumping installation for moving water from Galilee up to the conduit for transport to the western watershed as would be employed in the Johnston plan. Mr. Manor said that he would be very happy to provide Mr. Dillon with a statement amplifying this point.
- Source: Department of State, Central Files, 884A.00/4–2259. Confidential. Drafted by Shaw on April 24. A briefing memorandum for the conversation, April 22, is ibid., 784A.5–MSP/4–2259. A summary of the conversation was transmitted to Tel Aviv in telegram 750, April 25. (Ibid., 784A.5–MSP/4–2559) Eban and Dillon also discussed Iraq. A memorandum of that part of the conversation is ibid., Secretary’s Memoranda of Conversation: Lot 64 D 199.↩