884A.10/6–3052

No. 453
Memorandum by the Acting Secretary of State to the President

secret

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.

David Bruce

[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.]

  1. The tabs, not found attached to the source text, are supplied here from the ribbon copy of the memorandum in the Truman Library, Truman papers, President’s Secretary’s file. Tabs A, B, and C are the same as correspondingly designated attachments to a memorandum of June 17 from Byroade to Dulles (not printed) which discussed the Israeli financial emergency in anticipation of Sharett’s visit to the Department on June 18. (884A.10/6–1752)
  2. Document 446.