884A.10/6–3052
No. 453
Memorandum by the Acting Secretary of State to the President
secret
Washington
, June 30, 1952.
Subject:
- Appointment with Israel Foreign Minister, Mr. Moshe Sharett.
[Page 954]
The Israel Minister for Foreign Affairs, Mr. Moshe Sharett, and Ambassador Eban have an appointment with you
Tuesday, July 1, at 12:15. While the ostensible purpose of the call is
one of courtesy prior to his return to Israel, it is possible that the
Foreign Minister may take the opportunity to mention Israel’s, present
financial difficulties.
In this connection, Mr. Sharett has
already requested United States Government assistance in refunding
Israel’s short term debt, stated to amount to $124 million.
Possibilities suggested by the Foreign Minister included an Export
Import Bank loan or use of the United States Treasury Stabilization
fund. The need for such aid has not yet been proven, nor has it yet been
possible to evaluate its effect upon our policy of impartiality in the
Near East.
The difficulties are such that Dr. Raymond F.
Mikesell, Professor of Economics at the University of
Virginia and consultant to various government agencies, is being sent to
Israel, with the cooperation of the Israel Government, in an endeavor to
obtain sufficient information about Israel’s financial and economic
problems to recommend methods and policies for solving them.
The important points made by the Secretary in his conversation with
Foreign Minister Sharett and
Ambassador Eban were: (1) He
would have the matter gone into urgently; (2) Mr. Mikesell is being sent to Israel to try
to find an answer to Israel’s financial troubles; and (3) we must
determine whether Israel’s financial policy will be effective or whether
Israel will continue policies “which would recreate the present
situation.”
The Foreign Minister and the Ambassador were informed along the same
lines in interviews with Assistant Secretaries Byroade and Thorp and, it is
understood, with Secretary Snyder
of the Treasury, as well as with Mutual Security and Technical
Cooperation Administration officials.
There are attached in the event you wish to review them:
- 1)
- A memorandum on the background of Israel’s financial problem,
including the factors which have precipitated the present
crisis. (Tab A)1
- 2)
- A summary of United States Government aid to Israel. (Tab
B)
- 3)
- A summary of basic Israel financial statistics. (Tab C)
- 4)
- A memorandum of the conversation of June 18 between the
Secretary, Foreign Minister Sharett, and Ambassador Eban. (Tab D)2
Recommendation
In the event that Mr. Sharett
raises the question of further financial assistance for a refunding
operation, it is recommended you advise Mr. Sharett
- 1)
- that the subject is now under study by Dr. Mikesell, who is on his way to
Israel;
- 2)
- that any action will depend in part on the nature of his
findings; and
- 3)
- that Israel should by no means assume that a favorable reply
is a foregone conclusion.
[Tab A]
Background:
- (a)
- Israel’s leadership has been concentrating all its efforts
on “ingathering of exiles” since 1947, regardless of the
exiles’ capabilities, as individuals or as groups, to
contribute to the productivity of the nation.
- (b)
- This immigration policy has been carried on in as yet
unfounded hopes that natural resources might eventually be
developed to support an expanding population on higher
income levels than have been obtainable by the previous
population, largely made up of Moslem and Christian
Arabs.
- (c)
- This “ingathering” has now substantially ceased, in the
face of stubborn facts, but Israel’s leadership is committed
to the principle of unrestricted immigration.
- (d)
- Israel’s finances are complex, involved as they are not
only in the government’s accounts, but also in Zionist
groups largely centered in the United States, whose
contributions are often “tied” to objects not necessarily
controlled by the government or necessarily of first
priority in the light of the country’s pressing needs.
Israel has been supported, during the last four years, by
contributions from abroad which approach
$750,000,000.
- (e)
- Israel’s actual current international commercial debts are
still not clearly identified; efforts are now being made by
the Israelis to prepare an accounting which will indicate
the nature of the current [Page 956] accounts which Israel proposes to fund
with assistance from the United States.
- (f)
- Until more financial information is available, we cannot
tell whether the present crisis arises from (1) a
fundamental mismanagement of the nation’s resources, e.g.,
an overly expanded investment program, or (2) a
disorderly-debt repayment schedule, imposing undue burdens
on the state in the immediate future. If (1) is the case, a
funding operation would help but more fundamental remedies
are needed. If (2) is the situation, fuller information as
to the type and amount of required funding is needed. It is
conceivable that the total volume of short-term obligations
is not excessive, and the immediate problem can be solved by
a renewal of some of the more pressing obligations.
- (g)
- We have already arranged for Mr. Raymond Mikesell to examine
Israel’s entire financial position. This was done in
connection with the last request of Israel in April 1952 for
use of its MSA grant fund to
pay overdue short-term obligations. Mr. Mikesell, who will soon be
leaving for Israel pursuant to notes exchanged with the
Government of Israel, should be able to report fully before
September. In the meantime, it is believed that the Israel
Government can renew, pay, or otherwise satisfy its
obligations.
- (h)
- The program of grant assistance for 1953, now authorized
at about $70,000,000, is estimated to be adequate to finance
current Israel imports, when supplemented by commercial
exchange resources and the proceeds of contributions from
abroad—soon expected to be increased by payments from
Germany amounting to $50,000,000 per year, largely in
kind.
The Congress, in authorizing this grant, urged “the Administration to
end relief operations as soon as possible and concentrate on
development with the purpose of helping Israel to become
self-supporting.” Section 205 of the Mutual Security Act authorizes
the $70,000,000 to be utilized “for specific refugee and
resettlement projects in Israel.”
[Tab B]
Summary Of U.S. Government Aid To
Israel
I. Loans
Israel has received two 3½% twelve-year loans from the Export-Import
Bank as follows: [Page 957]
| January 1949 |
$100,000,000 |
| December 1950 |
35,000,000 |
| Total |
$135,000,000 |
Approximately half of the proceeds were devoted to agriculture, with
the remainder largely for industry, transport and communications.
The first semiannual repayment of $2,953,000 principal and interest
was made, as required, in March 1952.
II. Grants
The Israel Government requested grants in aid of $150,000,000 for the
fiscal year 1952 and $126,000,000 for the fiscal year 1953. Congress
approved the following figures:
|
Technical and Economic Aid
|
Refugee Relief and Resettlement
|
|
FY 1951 |
$96,300 |
–0– |
|
FY 1952 |
$14,950,000 |
$50,000,000 |
|
FY 1953 (Pending approval
by Appropriations Committee.... |
$2,772,000 |
$70,228,000 |
Of the $64,950,000 authorized for fiscal year 1952, $800,000 has been
obligated for technical assistance and the balance has been
allocated for economic aid and refugee relief with the exception of
$650,000 which has been set aside pending a final determination as
to over-all program direction costs.
III. Other Aid
Under the exchange of persons program authorized by the Smith-Mundt
Act, $155,776 has been allocated through fiscal year 1952 for the
exchange with Israel of leader specialists, professors, students and
other trainees.
During the period 1950–51, Israel received $23,255,318 in free
assistance in the form of surplus agricultural commodities.
[Page 958]
[Tab C]
Basic Financial Statistics—Israel
I. Bond Drive
(Unclassified)
From May 1, 1952, the initial date of the bond flotation, to December
31, 1951:
| Subscriptions |
$101,647,300 |
| Cash receipts |
$54,100,000 |
The most recent data available indicate that the totals had been
increased to:
| Subscriptions (May 1952) |
$125,000,000 |
| Cash receipts (June 1952) |
$75,000,000 |
II. United Jewish Appeal
(Unclassified)
Collections in the United States since 1948:
| 1948 |
$148,000,000 |
| 1949 |
$116,000,000 |
| 1950 |
$90,000,000 |
| 1951 |
$85,000,000 |
| 1952 (five months) |
$39,000,000 |
| Total |
$478,000,000 |
Note: An unofficial Israel source estimates
that three-quarters of these collections accrued to Israel and the
remainder was used for Jews outside Israel.
III. Balance of Payments
(Confidential)
1949–1951 (In Million U.S. dollars)
A. Payments (Expenditure)
|
Item
|
|
1949
|
1950
|
1951
|
| 1. |
Import of merchandise (CIF) |
$242.20 |
$287.28 |
$343.28 |
| 2. |
Transport and Insurance (additional) |
4.20 |
5.32 |
8.40 |
| 3. |
Foreign Travel |
2.24 |
2.80 |
2.24 |
| 4. |
Dividends, Interest, Real Estate |
0.84 |
1.12 |
0.84 |
| 5. |
Special Items |
4.48 |
10.36 |
6.44 |
| 6. |
Israel Representatives abroad |
1.40 |
1.68 |
1.12 |
| 7. |
Sundry Services (Posts, Patents, Publicity, etc.) |
0.84 |
1.12 |
0.84 |
| 8. |
Sundry Money Transfers |
2.80 |
4.20 |
1.40 |
| 9. |
Support and Tuition fees |
0.56 |
1.40 |
1.68 |
| 10. |
Miscellaneous (incl. 1.3 on amount of Indep. Loan) |
3.92 |
6.44 |
16.80 |
| Total |
|
$263.48 |
$321.72 |
$383.04 |
[Page 959]
B. Income (in Cash and in
Kind)
|
Item (Confidential)
|
|
1949
|
1950
|
1951
|
| 1. |
Export of Goods (FOB). |
$29.68 |
$44.96 |
$56.76 |
| 2. |
Insurance Companies & Local Transport |
3.08 |
2.52 |
1.40 |
| 3. |
Tourism |
5.88 |
3.36 |
2.80 |
| 4. |
National Funds, Independence Loan & Public
Institutions |
68.60 |
52.92 |
82.60 |
| 5. |
U.S. Grant-in-Aid |
—— |
—— |
14.00 |
| 6. |
Foreign Representatives in Israel |
4.20 |
2.80 |
1.68 |
| 7. |
Private remittances & purchases by the public. |
14.56 |
14.00 |
16.24 |
| 8. |
Releases of Sterling Balances and Balance of Purchase and
Sale by Issue Dept |
23.80 |
49.96 |
32.20 |
| 9. |
Foreign Securities |
—— |
—— |
9.52 |
| 10. |
U.S. Loan Imports |
17.20 |
46.68 |
46.12 |
| 11. |
Non-Payment Imports |
62.62 |
51.24 |
71.40 |
| 12. |
Other Loans and Credits |
32.76 |
60.48 |
68.32 |
| Total |
|
$262.48 |
$328.72 |
$403.04 |
IV. Foreign Trade
(Unclassified)
|
(In Israel Pounds) |
|
Exports
|
Excess of Imports Over
Exports
|
|
Imports
|
Israel Products
|
Re-Exports
|
Total Exports
|
| 1948*
|
23,213,940 |
1,326,126 |
214,622 |
1,540,748 |
21,673,192 |
| 1949 |
87,572,333 |
10,176,854 |
422,689 |
10,599,543 |
76,972,790 |
| 1950 |
102,604,442 |
12,552,415 |
609,797 |
13,202,212 |
89,442,230 |
| 1951 |
123,348,685 |
15,983,483 |
736,582 |
16,720,065 |
105,672,783 |
| 1952†
|
20,160,733 |
4,174,959 |
106,247 |
4,281,201 |
15,879,527 |
| Total |
356,900,133 |
44,213,837 |
2,089,937 |
47,343,769 |
319,840,572 |
* July through December only. No figures
are available for the first six weeks (May 15 to June 30) after the
founding of the State. [Footnote in the source text.]
† January and February only. [Footnote in
the source text.]
