4. Memorandum of a Conversation, Department of State, Washington, January 9, 19581

SUBJECT

  • Exim Bank Loan for Israel

PARTICIPANTS

  • The Under Secretary
  • Congressman Kenneth B. Keating, 38th District, New York
  • Congressman Hugh Scott, 6th District, Pennsylvania
  • David D. Newsom, NE

Congressmen Keating and Scott came to inquire regarding the United States Government decision on a proposed Exim Bank loan to Israel. Governor Herter explained that the Bank had informed the Department that it did not consider the loan justified on purely economic grounds and would not approve the loan unless there were overriding political reasons. The Under Secretary added that Israel had also applied for consideration under the new Development Loan Fund. The Department was giving serious study to a rather unusual proposal which Israel had put forward under which dollars from the [Page 9]Fund would be used to purchase consumable goods which would be resold in Israel for pounds. The resulting local currency would then be used for internal development.

The Under Secretary pointed out also that the Department did not consider that final action had been taken on the Exim Bank loan. The time might come, he said, when the Department might reconsider the matter. Perhaps reconsideration might be coupled with some expression on the part of the Government of Israel of willingness to accept Arab refugees.

In answers to questions from the Congressmen, Governor Herter said that the decision had been given to Ambassador Eban. He said the vote in the Exim Bank Board had been 3–2 against the loan purely on economic grounds.

Congressman Scott said that the Israelis claimed that they had been given a promise of approval on the loan when the matter was first considered. The Under Secretary pointed out in reply that, while he was not aware of any assurances to Israel, the preliminary discussion of this matter had taken place prior to the Sinai invasion.

In answer to a further question from Congressman Scott, the Under Secretary said he did not believe that the Israelis should be informed about the vote in the Exim Bank Board. He said that Ambassador Eban was undoubtedly seeking further information since he had asked for an appointment with the Secretary.2 Congressman Scott noted that Cy Kenen of the American Zionist Committee for Public Affairs had complained to him that Ambassador Eban had been unable to obtain information on this matter. Governor Herter noted that the decision had been a very recent one, within the last few days.

Governor Herter also noted that aid to Israel under PL–4803 was also being discussed. He said that the minority on the Exim Bank Board had favored a loan of $40,000,000 to Israel. This, together with other aid, would have given Israel $100,000,000, a very large sum for a country of two million people.

Congressman Scott noted that Israel had estimable requirements since it was this year bringing in 100,000 Jewish refugees. The Under Secretary commented that this was one of the many difficult parts of the problem. He said that the prospect of continuing large-scale Jewish immigration into Israel causes concern in the Arab world. The question is raised as to why Israel, if it can absorb more Jewish refugees, [Page 10]does not take back some of the Arab refugees. Governor Herter said that this would certainly help. He commented on various types of proposals that had been advanced to solve the refugee problem. Congressman Scott asked whether he could indicate to Jewish groups that some action on their part in connection with the Arab refugees might bring about a reconsideration of the Exim Bank loan. The Under Secretary said he would have no objection to Congressman Scott’s so indicating.

  1. Source: Department of State, Central Files, 884A.10/1–958. Confidential. Drafted by Newsom on January 10 and initialed by Herter.
  2. In a letter to Dulles, January 9, Eban stressed the “extreme urgency” which the Government of Israel set on the matter of the Export-Import Bank loan. (Ibid., 103. XMB/1–958)
  3. Reference is to the Agricultural Trade Development and Assistance Act (Public Law 83–480), approved July 10, 1954, which provided for the donation or sale on favorable terms of U.S. agricultural surpluses to friendly governments; for text as amended, see 7 USC 1691–1736.