884A.00/3–1551

Memorandum by the Deputy Assistant Secretary of State for Near Eastern, South Asian, and African Affairs ( Berry ) to the Secretary of State 1

top secret

Subject: Grant Aid to Israel

Discussion:

The Department understands that the Israel Government, through its Embassy in Washington, will shortly make a formal request to this Government for a grant-in-aid in the amount of $150,000,000 to assist Israel in its balance of payments problems over a one-year period. In addition, the Department has learned informally from the Israel Embassy here that Senators Taft and Douglas may have agreed to sponsor a Foreign Affairs bill authorizing this grant. It is not known when this bill may be introduced.

These funds would presumably form a part of a $1,500,000,000 Israel three-year program for economic development to consolidate the economy of the State and facilitate the immigration into Israel of the Jews of the Middle East and Eastern Europe, numbering an estimated [Page 595] 500,000. Of this billion and a half, it is proposed to raise $500,000,000 in Israel. It is planned that the remaining billion will be raised in the US through such means as promotion of a $500,000,000 bond issue, increased fund-raising through the United Jewish Appeal, and obtaining grants-in-aid from the United States Government. In the latter connection, fifteen prominent American Jewish leaders visited the White House on November 15, 1950 to present a memorandum2 to the President which stated that Israel has a special claim for financial support from the US and requested the US to grant Israel loans and other forms of financial support. It is probable that the present request for grant aid, if successful, will be the first in a series of applications by the Israel Government to cover the requirements of its three-year program.

The Department has formulated a balanced program of grant aid for the Arab states and Israel. This program, in the amount of $25,000,000, for the states involved, is being submitted for the approval of the Bureau of the Budget and is designed to accelerate the economic development of the Near Eastern states in spheres in which the local governments are unable either to supply the necessary finances themselves or to obtain loans from other countries. (Tab A)

It should also be noted that, in addition to the $25,000,000 proposed under the Department’s grant aid program, the Department is seeking legislative authority to contribute $30,000,000 to the United Nations Relief and Works Agency for Palestine Refugees in the Near East. Moreover, the policy toward the Arab States and Israel defined in NSC 47/43 contemplates a military aid program of approximately $45,000,000 to that area. These sums total $100,000,000 of proposed grant aid to the Near Eastern area for the coming fiscal year, from which Israel will receive both direct and indirect benefits.

The anticipated request for grant aid to Israel raises most serious political and strategic questions which may have a profound effect on our relations with the other states of the Near and Middle East.

The United States has endeavored to follow a policy of strict impartiality toward the Arab states and Israel. While US relations with the Arab states have been strained since the end of 1947, a year ago the Department became so concerned at the growing anti-American sentiment in the Arab states that it undertook a specific program to convince them of the sincerity and genuineness of this policy. While the latter approach has had some success, the Arab states still view actions of the US with suspicion and regard any action by the US favorable to Israel as proof that the US follows an anti-Arab policy. In this connection, the Arab states point to the numerous statements of high US Government officials tending to contrast them unfavorably [Page 596] with Israel, to the two Eximbank loans to Israel totalling $135,000,0004 and to the fact that Israel has not been obliged to repatriate the Palestine refugees.

Other factors as well have now entered the picture which have produced a sharp loss of confidence in the US and a resultant tendency toward neutralism in the Arab states. For example, the outbreak of war in Korea and the change in the power position of the US have engendered a growing feeling of neglect and isolation in these states, intensified their awareness of their own military weakness arid vulnerability, and resulted in a marked deterioration of morale. This situation has manifested itself in the reluctance of the Arab states to support the UN position on Korea, in anti-West and pro-neutral campaigns in the press, and in the unwillingness of any Arab leader publicly to counter this trend.

We consider, however, that these countries are basically pro-Western and anti-Soviet and are prepared to play their part, in cooperation with the US and the UK, in the defense of the area. Taking into consideration the view expressed in NSC 47/2, dated October 17, 1949,5 that “The political and economic stability of Israel and the Arab states is of critical importance to the security of the US”, the Department, in collaboration with the Defense Department, formulated a revised program toward the Arab states and Israel, contained in NSC 47/4, designed to counteract the growing tendency toward neutralism and to maximize the will of the states to cooperate with the West in resistance to the USSR both now and in the event of war. NSC 47/4 was approved by the NSC on March 146 and is now before the President for his approval.

Since the dominant consideration in US relations with the Near East is that of US security, the subject of grant aid to Israel must be considered in that light. We believe that for Israel to receive priority or exceptional treatment in the matter of grant aid would contravene our established policy of impartiality as set forth in NSC 47/2 and would produce a most violent and hostile reaction in the Arab states. In addition it might negate the policy set forth in NSC 47/4 and result in the complete alienation of the Arab states from the West. These developments could also have the most serious consequences on our strategic interests in Greece and Turkey, and could further prejudice the present critical situation in Iran.

Recommendations:

1. It is recommended that you discuss this question with the President at the earliest possible moment and seek his approval for the [Page 597] position that exceptional grant aid or other special financial assistance to Israel outside of the grant aid program which has already been proposed would contravene our policy toward Israel and the Arab states as set forth in NSC 47/2 and NSC 47/4.

2. In the event the President is unable to approve the foregoing recommendation, it is recommended that you seek his approval for the position that any program of increased grant aid for Israel should be undertaken only as a part of an integrated and balanced program of grant aid for the area as a whole, on the basis of the impartial grant aid program already formulated by the Department (Tab A).

[Tab A]

Grant Aid

The purpose of grant aid is to accelerate the economic development of the Near Eastern states in spheres which the local governments are unable either to supply the necessary finances themselves or to obtain loans from other countries. The total contemplated for the Near Eastern countries would amount to $25,879,000 in the fiscal year beginning July 1, 1951 on the basis of the following illustrative country breakdown:

Illustrative Program Thousand Dollars
Syria 10,201
Lebanon 3,208
Israel 968
Jordan 4,855
Egypt 870
Saudi Arabia 384
Iraq 5,000
Yemen  393
Total 25,879

These illustrative allocations for each country take account of the ability of Saudi Arabia and Iraq to finance their own economic development from oil royalties, of the sources of finance available to Israel from public and private funds in the United States, of Egypt’s relatively favorable financial position resulting from the good world market for cotton. Thus, most of the grant aid would be concentrated in Syria, Lebanon, Jordan and Iraq (the latter a large country with vast undeveloped resources).

These countries have not been officially consulted with respect to a proposed grant aid program. However, all of the governments of these countries have expressed a strong need for additional financing in order to carry ahead their development programs at a more rapid rate.

[Page 598]

The type of project contemplated here would involve measures to improve public health, engineering surveys of public works (which might become bankable), the establishment of technical laboratories and technical schools, the equipping and improving of existing agricultural experimental and demonstration farms, assistance to land resettlement projects which are designed to help solve the land tenure problem, technical experts on roads, laboratories and hospitals, and local trainees to be sent to the United States. These projects include what we now call Point IV Technical Assistance (which would amount to $1 million to the Near East countries in the current fiscal year) and more extensive grant aid projects involving both equipment and experts.

It is assumed in the grant aid program that strict economic development projects which are bankable would be financed either by the country’s own banks or by the IBRD or possible by the EximBank. The grant aid projects are over and above the bankable projects.

  1. This memorandum was drafted by Mr. Waldo and Mr. Stabler. It was cleared in NE, GTI, NEA, RA, EUR, H, E, and S/P, Routed through G and initialed by Mr. Matthews. Placed in Mr. Acheson’s White House Briefing Book on March 23.
  2. Not found in Department of State files.
  3. NSC 47/4 of March 7 is not printed.
  4. For documentation on the Export–Import Bank’s loans to Israel, see Foreign Relations, 1949, vol. vi, pp. 594 ff., and ibid., 1950, vol. v, pp. 658 ff.
  5. For text, see ibid., 1949, vol. vi, p. 1430.
  6. The paper which was approved by NSC March 14 and by President Truman March 17 is NSC 47/5. For text, see p. 95.