Office of the Historian

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

Washington, December 6, 1957.

SUBJECT

  • Israel Application for Export-Import Bank Loan

Discussion:

Ambassador Eban has written you (Tab A)2 enclosing a memorandum on factors of population and territory in Israel’s economy in which he seeks to prove that Israel immigration does not create a territorial problem. He urges immediate and favorable action on Israel’s loan application. A summary of his letter and the memorandum are attached (Tab B).3

We have also, in accordance with your request, reexamined the position taken in our previous recommendation (Tab C)4 in the light of the factors you mentioned, particularly proposals for a Middle East Development Agency and the possibility of linking an Export-Import Bank loan to Israel with the Israel attitude toward Arab refugee repatriation. An analysis of these possibilities is attached (Tab D).3 We conclude that it does not seem feasible at this time to seek to finance Israel projects out of a proposed new regional financial institution. We also do not feel that our own thinking has advanced to the point whereby a detailed plan for the use of this loan and other economic incentives as a means of persuading Israel to accept the principle of repatriation can now be put forward.

We continue to believe that the political repercussions ensuing at this time from the loan by the Export-Import Bank to Israel of a sizeable sum militate against granting of the loan. We recall that the grant now of an Export-Import Bank loan in the amount of $40 million would bring total fiscal year 1958 United States Government aid to [Page 846] Israel up to a level near the $100 million mark. (Tab E)5 Accordingly, we think that we should defer decision on the Israel application.

Recommendations:

1.
That you authorize Mr. Dillon to inform Mr. Waugh of the Export-Import Bank orally we are not in a position at this time to advise him that we look with favor, from the political standpoint, upon the granting of a further Export-Import Bank loan to Israel. We do not, however, rule out the possibility that we may wish to reactivate this matter if at some future date favorable action by the Bank could advance our political objectives in the area. We would suggest that Mr. Waugh inform the Israel Ambassador that the Bank would prefer to defer a final decision at this time.6
2.
This action by Mr. Waugh will undoubtedly cause the Israel Ambassador to approach us, urging that the Department strongly support the immediate granting of a loan. We would recommend our replying that it has been impossible to consider this application apart from complex factors in the Middle East which directly affect United States objectives and Free World interests. These factors include Israel’s immigration policies and the problem of the Palestine Arab refugees. Accordingly, we would like to defer a final decision on the Israel application at this time. We would wish to make it clear that we were not closing the door entirely and might well wish to discuss the matter further in the light of the developing situation in the area. Meanwhile, we maintain our readiness to examine other projects which Israel might submit for financing from the Development Loan Fund.7
  1. Source: Department of State, Central Files, 884A.10/12–657. Secret. Drafted by Bergus on December 5; concurred in by Villard, Hanes, and Herter; and sent through Dillon.↩
  2. Not printed. The tabs are not attached to the source text. Eban’s letter of December 3 with attached memorandum entitled “Factors of Population and Territory in Israel’s Economy” is ibid., 884A.00/12–357.↩
  3. Not found in Department of State files.↩
  4. Reference is to a memorandum, not printed, which Rountree sent to Dulles on November 16. In it, Rountree recommended that Waugh be informed of the Department of State’s belief that international political factors militated against the granting of the loan at that time, but that the economic and technical considerations involved be cited to Israel as the reasons why the Bank had been forced to decide against the loan. Dulles had neither approved nor disapproved the proposal. (Department of State, Central Files, 884A.10/11–1657)↩
  5. Not found in Department of State files.↩
  6. The list of attachments on the source text does not include Tab E.↩
  7. At this point, Dulles initialed his approval on the source text.↩

  8. At this point, Dulles initialed his approval on the source text with the comment “subject to Herter approval”.

    No immediate action was taken on the directives because Dillon left shortly for Paris as part of the U.S. Delegation to the NATO meeting (December 16–19). (Memorandum from Rountree to Herter, December 18; Department of State, NEA/NE Files: Lot 59 D 582, Memos to the Secretary thru S/S 1957) Upon his return, Dillon spoke with Waugh who in turn informed Eban on January 6, 1958, that there was no consensus within the Bank regarding justification for a further loan to Israel. Waugh told Eban that the Bank wanted to defer a decision on the Israeli application at that time. (Memorandum from Rountree to Herter, January 7, 1958; ibid., Central Files, 884.10/12–657)

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