Foreign Relations of the United States, 1955–1957, Arab-Israeli Dispute, January 1–July 26, 1956, Volume XV

237. Memorandum From the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Allen) to the Secretary of State¹

Washington, April 3, 1956.

SUBJECT

• FY 1956 Aid to Israel

Discussion:

As the Development Assistance Program for FY 1956 now stands, $20 million has been approved for aid to Israel. Of this amount, only $5 million is available for general purchases, while $15 million is to be given in the form of Section 402 agricultural commodities.²

In programming the $73 million for development assistance in FY 1956 for the Near East and Africa, ICA set up a reserve of $20 million, drawing $5 million of the amount needed from a $25 million fund originally planned for Israel. Subsequently, the question of financing the High Aswan Dam arose. The U.S. needed $55 million for its share of the initial work. ICA proposed with State concurrence that this amount be supplied out of the above-mentioned $20 million special reserve fund, plus $25 million already set aside for economic development plus $10 million from the general reserve fund under Section 401 (Tab A).³

There have now been further changes in the general situation with respect to aid for the Near East. The $20 million level for Israel presents a number of problems which warrant our taking another look at it.

1. The revised program represents a cut of 50 per cent instead of the annual cut of 30-odd per cent ($70 million to $52 million to $40 million) which has been the pattern of declining aid in prior years and to which the Israelis have become accustomed. As the program is to be administered, however, the cut is even more drastic in terms of funds available for general use—$20 million last year to $5 million this year.

2. The Israel Government has expressed “very sharp disappointment” at the $20 million figure, both in financial terms and because of its “enormous political significance” (Tab B).⁴ While from a strictly economic view the GOI can adjust to the reduced allocations, it did not anticipate such a low level in preparing its budgets. This, coupled with internal pressures for military and developmental expenditures, creates problems for the GOI in its financial planning.

3. The political implications of a sharp cut are aggravated by the decision to make $55 million available to Egypt, particularly when further funds are being requested for general economic aid to Egypt in FY 1957. The Israelis interpret the allocation of the reserve to Egypt as representing a transfer of funds from Israel to Egypt.

4. Those presenting the FY 1956 program to Congress may have difficulty explaining the cut of $5 million in the amount originally presented for Israel in FY 1956, especially in view of the $25 million requested for FY 1957.

5. The NSC policy directive calls for a progressive decrease in aid to Israel.⁵ A request for $25 million for Israel in FY 1957 following an allocation of $20 million for FY 1956 might be deemed inconsistent with NSC policy.

Recommendation:

That aid to Israel be increased from $20 million to $25 million for FY 1956. Of the increase approximately half should be a loan, making the total program $25 million, with $12.5 million loan, and including $15 million Sec. 402 Commodities. Funding arrangements for the additional $5 million by ICA should include utilization of available third country currencies.⁶

1. Source: Department of State, Central Files, 784A.5–MSP/2–1856. Secret. Concurred in by Robert G. Barnes and Dennis A. FitzGerald. Drafted by Lathram and Troxel on March 20.
2. Reference is to Section 402 of the Mutual Security Act of 1955 (69 Stat. 283).
3. Not printed. Reference is to Section 401 of the Mutual Security Act of 1955, which authorized the President to extend special grant assistance to individuals or nations when he determined that such assistance would contribute to the defense of the North Atlantic area or to the security of the United States.
4. Not attached to the source text, but identified as telegram 824 from Tel Aviv, February 18. (Department of State, Central Files, 784A.5–MSP/2–1856)
5. Reference is to NSC 5428, “United States Objectives and Policies With Respect to the Near East”, July 23, 1954; for text, see Foreign Relations, 1952–1954, vol. IX, Part 1, p. 525.
6. Dulles initialed his approval of the suggested course of action on April 6.