Foreign Relations of the United States, 1952–1954, The Near and Middle East, Volume IX, Part 1

Conference files, lot 59 D 95, CF 156

No. 11
Memorandum of Conversation, by the First Secretary of Embassy in Israel (Jones)¹

secret

Tel Aviv, May 14, 1953.

Subject:

• Economic Problems of Israel

Present:

• The Secretary, Mr. Stassen, Mr. Sharett and Messrs. Eshkol, Bernstein, Horowitz, Kollek, Avriel, Ben Dor, Sherman, MacArthur, Matteson, Russell, McDaniel, Evans, Street and Jones.

The meeting was opened with a brief outline of the economic policies and problems of Israel by Messrs. Eshkol, Bernstein and Horowitz. They all agreed that the most urgent of the problems was that of the external short term debt. Total external indebtedness was said to be approximately $380 million of which approximately $100 million would be maturing within the next 12 months. It was pointed out that a refunding operation, in the magnitude of the next 12 months maturities, would represent only about ⅓ of Israel’s total imports at the present time. It was also pointed out that Israel’s present short term borrowing was exceedingly expensive and that by refunding the short term debt and by discontinuing this short term borrowing, from $15 to $20 million would be saved annually in procurement. It was asserted that this saving would be enough to pay for the interest and amortization of such a refunding loan. The hope was also expressed that, if the United States were to assist Israel in such a refunding loan, it be done by some means other than through the U.S. Export-Import Bank. It was feared that the use of this agency for refunding purposes might preclude obtaining a further loan from this source at a later date for development purposes.

Mr. Stassen, in speaking on behalf of the Secretary and himself, first stated that the U.S. fiscal year 1954 budget had not yet been passed by Congress and that, consequently, neither the Secretary nor himself was in a position to speak in concrete terms with respect to economic assistance to Israel during the coming year. Mr. Stassen then went on to explain that economic assistance provided through the Mutual Security Assistance is coordinated in the closest manner with the Foreign Policy of the United States as formulated by the Secretary of State. He also emphasized that the United States Government now had world wide responsibilities and that its world wide commitments were now being reevaluated in terms of the United States’ own economic capabilities. He then said that this Israel request for a refunding loan would be studied in terms of Israel’s own program for achieving economic stability here and for using effectively the German reparations goods about to be received. Generally speaking, he said, an approach to the refunding problem by means of refinancing through existing holders of the short term debt would be preferred by the Government of the United States. In that connection, he asked for full details on the composition of the debt and of Israel’s future plans with respect to its balance of payments goals and its efforts to achieve greater economic stability.

At this point, Mr. Sharett reviewed briefly the efforts made by himself and by other members of his Government to obtain a refunding loan over the past year. He also expressed the hope that Israel’s rumored share of this year’s United States economic foreign aid program would not be reduced. Mr. Stassen emphatically stated, in connection with the latter point, that until Congress had acted on the fiscal year 1954 budget, any estimate of Israel’s share thereof had no validity whatsoever.

In the course of the discussion, an analogy had been drawn between the proposed Israeli refunding operation and the recent United States Export-Import Bank loan to Brazil for similar purposes. Both the Secretary and Mr. Stassen explained that there were significant differences between the Brazilian operation and the proposed Israeli operation. It was pointed out, first of all, that the Brazilian was made largely because of commitments that had been previously made by the preceeding administration. And secondly, that United States trade with Brazil differed in important respects from that with Israel in that imports from Brazil were relatively large. Both the Secretary and Mr. Stassen went on to say that the present administration would have preferred to have handled the Brazilian problem, as it will prefer to see the Israeli problem handled, by refinancing of the short term debt through the present holders of that debt or to private financial institutions.

Mr. Sharett concluded the meeting by making the following points:

a. In helping Israel the United States would be helping a country that will help itself.

b. The United States could be assured that any funds allocated to Israel would be used for the purposes for which they were intended. There would be no misappropriations or diversions.

c. The United States could also be assured that allocations to Israel would be used on projects and administered in such a manner that they would maximize the possibilities of Israel’s eventually obtaining economic independence.

d. Economic assistance to Israel would differ generally from that provided to other countries by the United States. In Israel, it would be used for the development of a new economy. Elsewhere, it would be more generally used, Mr. Sharett asserted, for the purposes of rehabilitating old and badly dislocated economies.

1. This memorandum of conversation was sent to the Department as enclosure 2 to despatch 1194 from Tel Aviv. The conversation took place at the office of the Foreign Minister.