McGhee Files: Lot 53 D 468
Memorandum by the Deputy Director of the Office of Near Eastern Affairs (Kopper) to the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (McGhee)1
Subject: Visit of Israel Minister and Mr. George Newell
The Minister of Israel, Mr. Theodore Kollek, will call on you at 3 o’clock today, accompanied by Mr. George Newell, Vice President, Manufacturers Trust of New York City, to discuss briefly Israel’s critical foreign exchange situation and the interest of the Manufacturers Trust and National City banks in the possibility of extending a loan to the Israel Government.
You will recall that in the course of Ambassador Eban’s visit with you on Friday, October 12, the Ambassador mentioned the seriousness of Israel’s present foreign exchange situation. Finance officials of the Israel Government have informed our Embassy at Tel Aviv that (1) Israel’s current foreign exchange reserves are nil, (2) Israel is faced with an apparent exchange deficit between now and the end of calendar 1951 of I£ 5 million ($14 million) which they hope to make up through extension of current maturities, sterling and franc credits, and additional dollar credits, and (3) the situation is still deteriorating; the foreign exchange now required to clean up the present [Page 913] arrearages and to get control of the situation is said to be $15 million.2 Although Israel’s officials do not believe that their Government’s credit has as yet been seriously impaired, the attitude of the banks and the character of the inquiries received by the Israel Government indicate widespread concern.
On October 15, Minister Kollek discussed Israel’s exchange situation with officials of State and Treasury. In response to a question as to what Israel would like to see done to assist her in her present plight, Mr. Kollek said they would like very much to have the US Government pick up the check for between 10 and 12 million dollars’ worth of the consumers goods which the Israelis have imported since the beginning of fiscal 1952. He had in mind the possibility of this sum being made available from MSP funds, once Congress has passed the appropriate legislation. Although no assurances were given Mr. Kollek that this sort of support could be expected from the US, he was informed that there was a distinct possibility that something along these lines could be worked out. It was emphasized, however, that it was impossible to foretell when Congress would complete its action, how much money would be available to Israel when the legislation is finally enacted, or the exact manner in which the funds may be utilized.
Subsequent to the above conversation, Mr. Kollek discussed the possibilities of obtaining a loan from Manufacturers Trust and National City with officials of these banks. Evidently the two banks have formed a consortium for this purpose, and are viewing favorably the possibility of extending a loan of upwards of $10 million to Israel. In his discussions with the bank officials Mr. Kollek mentioned that MSP funds might be forthcoming in the near future and that the Department was considering what steps might be taken, once the legislation is passed, to pick up 10 to 12 million dollars of Israel’s bills covering consumers goods imports. Mr. Kollek previously received the Department’s approval before mentioning that such a possibility was being considered.
Recommendations:
That you inform Mr. Newell that it is expected that the President will sign the MSP at any time and the Department hopes to make Israel’s MSP allotment of funds ($60/62 million) available as quickly as possible thereafter.
After a short discussion with Mr. Newell, it is suggested that you tell him that Mr. Gardiner will be glad to continue the discussion in his office since he is familiar with all the details.3