174. Memorandum of a Conversation, Department of State, Washington, October 27, 1960, 3 p.m.1
SUBJECT
- Aid to Israel
PARTICIPANTS
- H. E. Avraham Harman, Ambassador of Israel
- Mr. Aryeh Manor, Economic Minister, Embassy of Israel
- Mr. Avraham Salmon, Economic Counselor, Embassy of Israel
- The Under Secretary
- NEA—Donald D. Kennedy
- NE/E—Randall S. Williams
- L—Robert Krones
The Ambassador brought felicitations from Israel Finance Minister Eshkol who had been greatly encouraged by his recent conversation with Mr. Dillon.2 Mr. Eshkol had been glad to hear before he left the United States that $7.5 million in Special Assistance funds (the same as last year) would be made available to Israel this year and he asked that his appreciation be conveyed to Mr. Dillon.
The Ambassador stated that in Mr. Eshkol’s discussion with Mr. Dillon the question of DLF loan proposals had been touched upon. It might, therefore, be appropriate to summarize the present position. The Israel Government has now presented DLF with three proposals: $10 million for the Industrial Bank; $13 million for agricultural settlements; and $15 million for housing.
With regard to housing, the Ambassador stated there was one point he wished to stress: Mr. Dillon had referred to the “political aspects” in his last conversation and the Ambassador wished to express confidence that Israel’s present proposal would meet that point fully. The proposal has two major objectives. First, to provide housing for newly established families. He noted that there are now 16,000 marriages in Israel per year and present housing is not keeping pace. The second major objective is to provide housing in new industrial areas. He emphasized that the loan is for private housing to be financed by private banks. Thus, the Israel housing proposal poses no political problem for the United States and the Ambassador expressed hope for sympathetic consideration.
The Ambassador went on to say that when Mr. Eshkol saw Mr. Dillon, the latter had mentioned that, although Eximbank has facilities for granting commodity import loans, the DLF does not have these [Page 384] facilities. Following his conversation with Mr. Dillon, Mr. Eshkol took this matter up with particular reference to a $30 million loan for the purpose of agricultural consolidation. The Ambassador said his Government estimates that an investment of 300 million Israel pounds (about $160 million) is needed to effect the final economic consolidation of villages established since the war. He explained that economic consolidation means providing means to permit maximum production. This is necessary to ensure a decent income and also for social reasons to make farming an attractive field of activity. Because the American purchases directly tied to this plan are limited to $13 million, Mr. Eshkol raised with Mr. Waugh of Eximbank the possibility of getting a kind of line of credit from that bank to be used for purchases in the United States which would in turn generate an Israel pound equivalent to be directed to the massive job of consolidating the settlements. It is the Embassy’s intention to present a formal application in this sense to the Bank. He said that there had been informal discussions which had provided encouragement and observed he was sure he need not stress the economic and social importance of this project.
The Under Secretary said this appeared to him to be a fine project. He had always favored Eximbank doing the maximum amount it can for Israel. He referred to the fact that the bank is an independent agency. He was agreeable, however, to the extent feasible, to indicating that the agricultural consolidation project appears to be a good one. He stated that once the application has been made he will be glad to help in that manner.
The Under Secretary said the Embassy had raised with him some time ago the problem with DLF regarding the telecommunications loan and gave him new information on the basis of which it was possible to ask DLF reconsideration. There had been some misunderstanding and he was glad the new information made it possible to go forward with the loan. Mr. Dillon said he did not know the status of the particular DLF applications which the Ambassador had mentioned except that he understood the $10 million Industrial Bank loan is proceeding in the usual way. He understood the housing application had just been submitted and added, as he had mentioned before, that this presented some difficult problems for DLF. So far, DLF has only undertaken such projects in South America. There are no prohibitions against such projects elsewhere but the emphasis is on that area. Eventually, when the new South American program is in operation, DLF may find it possible to withdraw from this field. In any event, we will undoubtedly have problems concerning this Israeli proposal and will have to look into it further.
The Ambassador said the Israel request for a PL 480 Title I program was going ahead in a normal manner and there was just one aspect that he would like to mention—the question of Israeli pound [Page 385] counterpart. He mentioned that last year the Department had agreed to make available about 15% as a grant for community development and observed the application this year asked for an increase to 50% of country use or 30% of the total program. The Under Secretary stated that in countries where we have a substantial excess of local currency he favored maximizing the use of grants provided we can find good projects and can feel we are really helping. However, the responsibility in this matter is sub-delegated to the Bureau of the Budget, which for reasons of its own is not always favorably disposed. Mr. Dillon said his own efforts had been directed toward avoiding building up excess quantities of local currencies. He had been able to get up to 15% for grant purposes for a number of countries of which Israel is one. We have been able to go higher than this in a limited list of countries where the local currencies are unlikely to be worth much. Mr. Dillon stated he did not know whether BOB would consider Israel qualified. In any event, there must be a clear idea of what the grant would be used for in terms of specific projects and not just something which would otherwise be done in the normal budget. Mr. Dillon concluded that if the Embassy submitted good projects he would do his best with the Bureau of the Budget.
- Source: Department of State, Central Files, 784A.5–MSP/10–2760. Confidential. Drafted by Williams, initialed by Kennedy, and approved in U on November 3. A briefing paper for the meeting, October 27, is ibid.↩
- See Document 169.↩