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

97. Memorandum of a Conversation Between the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Allen) and the Israeli Ambassador (Eban), Department of State, Washington, February 16, 1956¹

Washington, February 16, 1956

SUBJECT

• Israel’s FY ’56 Economic Aid Program

The Ambassador stated that he had come in primarily to discuss the economic aid program for fiscal 1956. He observed that the Israeli Government rightly or wrongly had expected a larger contribution than the $20 million recently announced for Israel² and that the smallness of the amount and the sharp reduction from the $40 million program of last year had created much disappointment. In view of the smaller authorization for the region as a whole, they had anticipated some reduction, but not one so drastic. Ministries concerned with the planning and implementation of Israel’s economic development had based their plans on the assumption of a larger figure.

In addition, the Ambassador mentioned other factors which were aggravating the present economic situation in Israel:

(1) Increased expenditures for defense purposes, for example, the installation of air-raid shelters which the public is demanding would cost about 100 million pounds;

(2) Increased effectiveness of the Arab boycott on Israeli earnings. He referred to the recent withdrawal from Israel, as a result of Arab pressures, of the American Express Company and Socony Vacuum³ and to growing efforts of the Arabs to increase the effectiveness of the boycott in Western European countries. He mentioned also a report that American shipping companies have been warned against carrying P.L. 480 wheat to Egypt after passage through Israeli territorial waters;

(3) Failure of any financial assistance to materialize this year as a result of support for the Jordan Valley Project. (Ambassador Johnston had mentioned $40 million on several occasions.)

Ambassador Eban observed that these foregoing aggravations, particularly the increased cost for military expenditures, have reversed the previous trend toward improvement in the Israeli balance of payments situation.

The Ambassador urged the U.S. Government to reconsider the fiscal 1956 program, specifically by increasing its size by $10 million. If it were absolutely impossible to provide $10 million for general development uses, he suggested the addition of $10 million worth of surplus agricultural commodities under Section 402 of the Mutual Security Act;⁴ he understood ICA is hard pressed to meet its total legal requirements under Section 402 and wondered if this device for increasing aid to Israel might not have some appeal. The Ambassador further observed that if an increase in total size of the program is impossible for fiscal 1956, he hoped the U.S. Government would at least undertake to change the composition of the $20 million program by reducing the Section 402 commodity component to $10 million, thereby adding $5 million for other types of procurement. He also hoped the reduction in the fiscal 1956 aid level would be offset by a larger contribution to Israel during fiscal 1957.

1. Source: Department of State, Central Files, 784A.5–MSP/2–1656. Confidential. Drafted on February 20 by Gay.
2. The Department authorized the Embassy in Tel Aviv on February 1 to inform the Israeli Government that the level of U.S. development assistance for Fiscal Year 1956 had been set at $20 million. (Telegram 532 to Tel Aviv; Ibid., 784A.5–MSP/ 2–156)
3. Documentation regarding the Socony Vacuum Oil Company’s decision to terminate its operations in Israel is Ibid., 884A.2553.
4. Section 402 of the Mutual Security Act of 1955 (69 Stat. 283) earmarked a minimum of $300 million for fiscal year 1956 to finance the exportation and sale for foreign currencies of surplus agricultural commodities or products produced in the United States.