342. Memorandum of a Conversation, Department of State, Washington, June 20, 19571


  • Israel’s Financial Problem and Request for U.S. Assistance


  • Mr. Eshkol, Minister of Finance, Israel
  • Mr. Sherman, Economic Minister, Embassy of Israel
  • W—Mr. Dillon
  • NEA—Mr. Lathram
  • NE—Mr. Bennsky

Mr. Eshkol’s presentation of Israel’s financial problem and his request for U.S. assistance in meeting this problem followed in general the approach set forth in the attached Aide-Mémoire, which was handed the Department by the Israel Embassy on June 19, 1957.2

After briefly reviewing the role and problems of immigration from the founding of the State of Israel to present, the heavy investment required to handle such an influx and the results of efforts already made by Israel with outside help to absorb the newcomers, he stated that this year his country was faced with the task of taking in 100,000 immigrants from behind the Iron Curtain and from Egypt. He went on to make the points (1) that even with the most stringent economies feasible Israel could not meet the costs of this new wave of immigrants and (2) that even if Israel wanted to it could not stop this inflow. Therefore, during its current fiscal year, Israel was heading into a grave financial situation with income being short by tens of millions of dollars of meeting required expenditures. Under these circumstances, [Page 650] he thought that it was time that Israel’s friends, whom he knew were concerned with its welfare and had the legal channels through which they could help, should be informed of its serious financial problem.

Mr. Eshkol then turned to a brief review of ways, set forth in the Aide-Mémoire, in which the U.S. might help Israel. He noted in particular that (1) PL 480 aid had amounted only to $10.7 million in FY 1957 as compared to $28 million in FY 1956, (2) MSP aid which had dropped from a high point of $72.5 million to $25 million should be increased by $20–$30 million, (3) Israel’s application of more than a year ago for a loan from the Export-Import Bank was still in an uncertain state, and (4) Israel had not received any aid within the framework of the American Doctrine. He concluded his presentation by stating that Israel would require during its current fiscal year much more assistance from the U.S. than it had received during recent past years.

Mr. Dillon asked Mr. Eshkol to elaborate on the immigration trend against which Israel was basing its economic and financial planning. Mr. Eshkol replied that three years was the longest period that could reasonably be used for planning purposes and that during this period Israel must plan on taking in between 60,000 and 70,000 immigrants a year. He added that he hoped that private German reparations would provide a couple hundred millions of dollars during this time and that private foreign investment could be directed into the housing field. He thought that before private American investors would put money into housing in Israel they would want to be covered by the investment guaranty program.

Mr. Dillon said that Mr. Eshkol’s visit was timely in that we were approaching the beginning of a new fiscal year and thus were well into the planning stage of our foreign assistance programs. However, with regard to providing immediate help, he pointed out that, with the exception of PL 480, we could not expect funds to be appropriated for another month. As for PL 480, he added we hoped that Congressional action would be completed within ten days to two weeks. Mr. Dillon indicated that at that time we would sympathetically consider in the context of the amount of funds available and the applications for this assistance by other countries Israel’s PL 480 request in hopes of doing somewhat better for Israel than last year.

With regard to the FY 1958 Mutual Security Program, Mr. Dillon thought that Israel would be in a good position to obtain development loan assistance since it had the technical ability to set up sound projects. However, he noted that it would probably take a few months to organize the procedure for handling this type of aid which was a departure from the development assistance of past years. As for special [Page 651] economic assistance, Mr. Dillon indicated that we could not determine how it would be distributed until we knew how much would be appropriated for this purpose.

In reply to Mr. Eshkol’s remarks on Israel’s loan application with the Export-Import Bank, Mr. Dillon said the Department has indicated to the Bank that it thought that Israel’s application was for a useful project and hoped that the Bank could within its framework make a loan. In addition, he thought the Bank would give serious consideration to Israel’s application, but that the Bank’s final decision would necessarily depend heavily on the report of its upcoming mission to Israel. Mr. Dillon pointed out that this mission was a part of the Bank’s normal procedure for considering loan applications and the delay in sending it to Israel was occasioned by the complications of recent events in the area.

In response to Mr. Dillon’s conclusion that the quickest help which the U.S. could provide Israel would be in the form of PL 480 assistance, Mr. Sherman asked if it were not possible to provide Israel with some immediate assistance from the remaining balances of FY 1957 MSP funds. Mr. Dillon replied that he would discuss this prospect with Messrs. Rountree and Hollister but that he thought it would be very difficult to make any FY 1957 funds available in light of the very few days remaining before the end of this fiscal year.

At the close of the conversation, Mr. Dillon said that Mr. Eshkol’s presentation had given him a better understanding of Israel’s problem and expressed the view that he would be very surprised if U.S. aid to Israel were not larger in FY 1958 than it had been in the recent past.

  1. Source: Department of State, Central Files, 784A.5–MSP/6–2057. Confidential. Drafted by George M. Bennsky, an international economist attached to the Office of Near Eastern Affairs, on June 21.
  2. Not printed. A briefing memorandum from Rountree to Dillon, dated June 20 and written in preparation for the conversation with Eshkol, noted that Israel would face a shortfall of foreign exchange during the period April 1, 1957–March 31, 1958.

    The aide-mémoire listed the following possibilities whereby the United States could assist Israel:

    “a) A PL 480 program in the amount of $48 million to be agreed upon by June 30, 1957.

    “b) Favorable action on the full amount of Israel’s loan application to the Export-Import Bank for $75 million for water development.

    “c). United States economic aid to Israel for fiscal year 1958 in the form of a development loan of $40 million.

    “d) If necessary, $20 million in special assistance from either fiscal 1957 or fiscal 1958 funds.

    “e) Aid projects to Israel within the framework of the American Doctrine.”(Ibid., 884A.10/6–1857)