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

884A.10/8–1252

No. 469
The Israeli Ambassador (Eban) to the Secretary of State¹

AE/315

Washington, August 12, 1952.

The Ambassador of Israel presents his compliments to the Honorable the Secretary of State and has the honor to refer to the Notes exchanged between the two governments on April 30² and May 1, 1952³ concerning the utilisation by Israel of funds available under the United States Mutual Security Act of 1951.

2. In paragraph 4 of his Note of April 30, 1952 the Secretary of State announced his decision to despatch a representative to Israel for the purpose of surveying the current financial and economic problems of the country. In reply, the Ambassador of Israel conveyed his Government’s willingness to receive such a representative and to provide the fullest available information on its foreign exchange income and expenditures, its internal budgets and fiscal procedures. The Government of Israel further agreed to make such information available for the duration of United States economic assistance to Israel.

3. During the month of July 1952, Dr. Mikesell, the representative of the United States appointed pursuant to the Secretary of State’s Note of April 30, 1952, carried out a rapid survey in Israel of the country’s short-term debt position on the basis of information made available by the Government of Israel. The Government of Israel drew attention to urgent obligations which would arise for payment from the first week of August 1952 onward. It also conveyed its view that even after fulfillment of these immediate obligations, periodic emergencies would inevitably occur unless Israel was assisted to refinance the major portion of its short-term dollar indebtedness, amounting to approximately $115,000,000 for the twelve months’ period beginning July 1, 1952.

4. In the course of examining its financial problems in recent months, both before and during Dr. Mikesell’s mission, the Government of Israel became aware of the need to institute substantial revisions in its economic and fiscal policies, as well as in some of its administrative procedures. Early in 1952, the Prime Minister announced a series of economic reforms, calculated to combat inflation and to restore financial equilibrium. This policy, which involved an intensification of austerity programs and a stricter control of all foreign currency expenditures, has borne marked results; yet it cannot, in the nature of things, have yielded its full effect within so brief a time. At this stage, the Government of Israel has decided to adopt further detailed measures to promote financial recovery and to avoid recurring threats to its financial structure. In accordance with paragraph 8 of his Note of May 1, 1952, the Ambassador of Israel, on instruction from his Government, herewith conveys to the Government of the United States the following information on the new steps which will be taken with this aim in view.

5. The Government of Israel is now in the course of preparing a foreign exchange budget for the twelve months’ period beginning July 1, 1952. Every effort will be made to have this budget ready by September 15, 1952. The foreign exchange budget will constitute a working basis for Israel’s foreign currency operations throughout the year, and will accordingly be drawn up along the following lines:

(a) No part of Israel’s revenues either for current or development purposes during the twelve months beginning July 1952 shall be derived from a net increase in short- and intermediate indebtedness. On the contrary, it will be Government policy to attain the maximum net reduction of outstanding short-term debts by repaying such amount of short-term debts as may be feasible and refunding as much as possible into long-term obligations.

(b) Non-transferable or tied income items will be matched against appropriate specific items of expenditure. Cash expenditures and debt service will be off-set only against cash income.

(c) Due consideration will be given to all outstanding obligations.

Within the twelve months’ period, the principles described in (a) and (b) will be modified only when there are seasonal fluctuations in income and expenditure. It will be the policy of the Government of Israel to regulate its expenditures within the limits of this foreign exchange budget.

6. Since the assistance extended by the United States under the Mutual Security Act of 1951 and 1952 constitutes an important element in Israel’s foreign exchange income, the Government of Israel intends to make its detailed foreign exchange budget available to the representatives of the United States Mission in Israel. In order to facilitate effective co-operation in the use of such assistance between the Government of Israel and the representatives of the United States Mission in Israel, the Government of Israel intends to follow the procedure of regular consultations with that mission which would enable stock to be taken periodically of Israel’s financial position.

7. The Ministry of Finance will keep records showing all incomes, expenditures, commitments, new credits or borrowings, imports and services carried out or authorized, external and internal cash positions and cash balances in all currencies. Figures for each month will be analysed in relation to all sections of the Israel budget, with special reference to the foreign exchange components thereof.

8. The Government of Israel intends to establish concurrently with the preparation of the foreign exchange budget, a special Governmental Organ endowed with full authority to make all allocations of foreign currency, including the granting of permission to make foreign exchange commitments against foreign exchange income. The Government is resolved to take all measures to ensure that all foreign exchange committments will be kept strictly within the limits of its foreign exchange income. As soon as possible, a system of accounting will be instituted under this Organ which will reveal the current and prospective foreign exchange position of the country weekly or monthly according to the nature of the item.

9. It is the intention of the Government of Israel to centralize all import programming including the screening as to order of priority of requirements submitted by various ministries.

10. The Government of Israel adheres to the view presented by the Minister for Foreign Affairs and the Ambassador of Israel to the Secretary of State on June 19, 1952, that any fundamental stabilization of its financial position will be impossible, unless longer periods of maturity can be obtained for its indebtedness, the impact of which is especially heavy for the twelve months’ period beginning July 1952. The Government of Israel, for its part, will make every effort to negotiate arrangements with its creditors whereby short-term debts might be extended and spread over a longer period of years, provided that Israel’s credit standing with pertinent creditors would not thereby be impaired to the extent of making it impossible for the State to supply the population with the most basic necessities. Meanwhile, the Government of Israel will not divert current income to net debt retirement at a rate which will make it impossible for Israel to cover her essential import needs.

11. The Government of Israel fully recognizes that the reforms necessary to achieve a balanced foreign exchange budget will require increased sacrifices on the part of its people and it is prepared to make such sacrifices. The Government is confident that the new measures which it has decided to adopt, and especially those enumerated above, will help the country to advance, through arduous efforts and heavy sacrifices, toward a balanced economy in a manner worthy of the democratic principles and social ideals which Israel strives to exemplify, and conducive to the continuation of internal stability which it has so far been able to maintain, in a troubled and unstable area. While the difficulties which these measures are designed to overcome are admittedly acute, they do not constitute the sole or main element of Israel’s economic situation. These difficulties, in part, arise from a process of dynamic growth, at a rate scarcely precedented in the history of nations. In sharing a frank discussion of these difficulties with the Government of the United States, Israel is moved by a sense of profound appreciation of the assistance which the Government and people of the United States are rendering to it in the critical and formative period of its early development.⁴

1. A covering letter (No. AE/310, not printed) was dated Aug. 11.
2. Neither printed.
3. For the agreement for emergency assistance effected by exchange of notes at Washington dated May 1, which entered into force May 1, see 3 UST (pt. 3) 4266.
4. Acknowledged by the Department of State in a note of Aug. 28, not printed. (884A.10/8–1252)