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

884.10/7–853

No. 634
Memorandum by the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Byroade) to the Secretary of State¹

secret

[Washington,] July 8, 1953.

Subject:

• Israel Request for a Funding Loan

Discussion

On June 11, 1953, Ambassador Eban requested Mr. Stassen’s assistance (a) in obtaining a $75,000,000 loan from the Export-Import Bank for debt refinancing, and (b) in making available certain unused funds from the FY 1953 NEA appropriation to meet a short-term debt crisis. You recommended that Mr. Stassen accede to the second request, which he did, and agreed with him that the first should be rejected. However, Mr. Stassen has not as yet informed Ambassador Eban of the rejection, and we understand he may seek your guidance as to when and in what manner the Israel Government should be notified.

Developments in Israel indicate that the Israelis should be informed as quickly as possible. In a recent conference between Embassy-TCA personnel and officials of the Israel Government (Tab A),² the Israel Minister of Finance (a) defended Israel’s deficit financing policies, (b) reiterated that the United States Government should help Israel in dealing with its past debt, and (c) implied that Israel would continue to borrow to the hilt for the rapid development of the economy “in a manner determined by statesmen motivated by faith in Israel and not by experts, bookkeepers and statisticians.” Embassy Tel Aviv believes that the Minister’s statement may have been based partly on the belief that Israel will receive a funding loan as a result of direct approaches to Washington, and that until it is made clear no loan will be forthcoming, it is unlikely that the Israel Government will take the steps necessary to place its finances on a sounder basis. Our best information is that the Israel Government will probably be confronted with another financial crisis no later than July 31, 1953. Delay in making our position clear may be construed by the Israelis as evidence that they can rely on a funding loan.

Recommendation

That you suggest to Mr. Stassen, if he telephones, (1) that he inform Ambassador Eban (or Minister Goitein, his deputy) as soon as possible, that an Export-Import Bank loan will not be forthcoming, (2) that he also tell Ambassador Eban that the Israel Government would be well advised to seek private arrangements respecting its debt, and (3) that his staff arrange with the Department for concurrent notification of this decision to the Israel Government by Embassy Tel Aviv. A copy of the proposed telegram to Tel Aviv is attached (Tab B).³ The original is in Mr. Stassen’s office for clearance.

1. Sent through the Executive Secretariat. An attached note of July 13 from O’Connor to Byroade reads: “The Secretary has talked to Mr. Stassen along the line of your attached memorandum.”
2. Not found attached, but see Document 631.
3. Not found attached, but possibly telegram 41 to Tel Aviv, Document 639.