5. Memorandum of a Conversation, Department of State, Washington, January 14, 19581

SUBJECT

  • Application for Loan from Export-Import Bank

PARTICIPANTS

  • Mr. Abba Eban, Ambassador of Israel
  • Mr. Ya’acov Herzog, Minister, Embassy of Israel
  • Mr. Meir Sherman, Economic Minister, Embassy of Israel
  • The Under Secretary
  • NEStuart W. Rockwell
  • NEDonald C. Bergus

Mr. Eban said that he wished to devote the entire time to the question of Israel’s application for a loan from the Export-Import Bank. He said that it was not as though he were initiating this topic. He was speaking in the framework of discussions which went back over four years. The Israelis felt that this history determined the moral responsibility of each side. From 1953 on, over a period of two and one-half years, the United States had asked Israel to refrain from developing the River Jordan while Ambassador Johnston pursued his efforts for the Unified Plan. Mr. Johnston had five or six times asked the Israelis not to divert the river during these discussions and his requests had met with success. Mr. Johnston’s efforts reached a deadlock in the spring of 1956. It was then that the Israelis asked the Export-Import Bank for a loan to develop water resources outside the Jordan Valley. The matter was opened with the Department in March, 1956, at which time, according to Mr. Eban, the Secretary had said that it was for the [Page 11]Bank to weigh the economic and financial aspects. The Department would sympathetically consider the political aspects on the understanding that there would be no work in the demilitarized zone. The Israelis had been approached by the Department and asked to change the priority of their water development plans from projects within the Jordan Valley to projects outside of it. The Israelis had proceeded in accordance with that concept.

Mr. Eban continued that the object of their application was to finance projects which would enable Israel to earn as much as $60 million annually. The Israelis were aware that this application was being studied against the background of substantial United States aid to Israel. The Israelis looked forward to achieving less dependence on United States aid, a goal they assumed was shared by the United States.

Mr. Eban had consulted his records and found that this matter had been discussed 19 times within the Department. A uniform position on the part of Department spokesmen had emerged, which was that Israel should prove its case from the economic and financial viewpoints. The Department’s approach was affirmative. The matter had been discussed with former Under Secretary Hoover. The Israel Finance Minister had been in Washington in September, 1956 and was informed that the Department would convey encouraging views to the Bank. The Secretary had said that he had done this and in October, 1956 Mr. Waugh of the Bank announced the plan to send a technical mission to Israel. Mr. Waugh had stated to Mr. Eban at the time that he envisaged this as an “organic” development. Specifically Mr. Waugh had stated that “the mission was not a joy ride.”

The mission’s trip had been postponed as a result of the Suez events. Broad discussions between the United States and Israel Governments had taken place in February and March of 1957, and there had been discussion of our relations in general terms. The Secretary had said that if Israel agreed to withdraw its forces behind the armistice lines United States–Israel relations would not only be restored but would be more positive and fruitful.

The withdrawal had taken place and in April, 1957 the resumption of economic aid relationships between the United States and Israel had been announced. Mr. Herter had informed Mr. Eban on April 2, 1957 that the Department was briefing the Export-Import Bank. In a subsequent conversation with the Secretary, at which Mr. Theodore Kollek was present, the Secretary had stated that the Bank had been hesitant about sending a mission but that the Department had said the political interests of the United States were involved.

The mission arrived in Israel in mid-summer 1957. The Israelis had the impression that any skepticism in the Bank toward the loan had been mitigated. The Israel Finance Minister had been in Washington [Page 12]again in June, 1957, at which time the Secretary had said the Department had not changed its position of sympathy, and expressed the hope that the mission would find a technical basis for the loan. When the mission left Israel its Chairman had stated he was deeply impressed and that a final decision should not take long.

During August and September, the Israel Embassy had been in contact with the mission in Washington to supply it with additional data. The mission had not indicated that there was any substantive change in its views. Since then, the matter had been in abeyance, but the Israelis had been told that things were proceeding in a normal course. Mr. Eban had inquired of Mr. Rountree if any question had arisen which required further action. Mr. Rountree had replied that there appeared to be nothing further for Israel to do. In this conversation, the Israelis had pointed out that as far as repayment were [was] concerned Israel had already repaid $70 million in principal and interest on the original Export-Import Bank loan. Mr. Rountree felt that this was an impressive consideration.

Mr. Eban wished to draw attention to what he felt was the length and consistency of the Department’s position. His Government had lived under two assumptions: that the Bank had a friendly attitude as a result of the technical and economic justification presented to it; and that the Department had a friendly attitude from the political viewpoint.

Mr. Eban had felt disquiet when Mr. Waugh had said that the Department had informed him that the time was not appropriate for a loan of this size. Mr. Waugh had said that all these considerations rested with the Department.

This had brought Mr. Eban here to describe why this was a dominant problem in United States–Israel relations and to describe its effects. From the economic viewpoint, Israel’s planning had been on the assumption that the loan would be forthcoming. The hope was that by 1960 Israel could approach the time when it could save millions annually in food production.

The failure of the loan to materialize would have grave repercussions and emergency effects on Israel’s economy. Israel assumed that the United States was deeply interested in a viable Israel and the disappearance of the need for United States economic aid.

From the political viewpoint, Mr. Eban stated that he had advised his Government over a long period to rely strongly on assurances given by the United States even if they did not have contractual force. Since March, 1957, Mr. Eban had thought that sound relations could be constructed on the basis of a network of voluntary assurances. This was important. If one analyzed present United States–Israel relations, it would be seen that they rested upon “unsealed” assurances. This went for both sides. It meant that if the Israelis said no trees would be [Page 13]planted, that Israel warships would be tied up at Eilat, that Israel would not raise the Suez Canal issue, and that Israel would not divert the Jordan, that these assurances had substance, even if they were not solemn contracts. After this history, if Mr. Eban must tell his Government that “all was off” with regard to the Export-Import Bank loan, his personal confidence would be irrevocably shaken. Mr. Eban asked the Secretary and Under Secretary to consider this matter in that light.

The Israelis tried to conjecture the problems which the United States faced in considering this matter. It might be that the United States problems were connected more with the form rather than the substance of the matter. The United States might be concerned about the appearance of its taking favorable action at this time or the public echo which would be engendered. If that were the case, the Israelis had ideas and suggestions to put forward. United States action did not have to be a “reverberating” thing.

The Under Secretary opened his remarks by saying that he was sorry we did not have a stenographic record of Mr. Eban’s statement as it contained so many points. At the outset, the Under Secretary wished to stress that this was not a closed matter. As for the relationship of the Department of State to it, the President of the Export-Import Bank had come to the Department and said to us that the matter had not yet been voted upon, that he knew the attitudes of the Board members and did not think that a favorable decision would result from the Board’s vote. He wished to discuss it with us to see if there were overriding political reasons for granting the loan. We have sought to find if there were such considerations and have not yet said that there were. It was therefore not correct to say that we opposed an Export-Import Bank loan to Israel.

Some matters had arisen in connection with this and Israel’s application to the Development Loan Fund. The Under Secretary recalled a conversation he had with the Israel Foreign Minister at Mr. Eban’s home some months ago.2 In that conversation, the Under Secretary had raised two matters which caused us concern in the area. One was the effect in the area of Israel’s immigration policy. The other was the Palestine Arab refugee problem. We wondered what Israel could contribute to a solution of that problem. We assumed that the projects to be financed by an Export-Import Bank loan would make more homesteads available in Israel. The question in our minds was whether Israel envisaged this from the viewpoint of greater immigration or whether it opened the possibilities for Israel’s contributing to a solution of the refugee problem. The applications to the Development Loan Fund covered largely industrial projects. The Export-Import Bank [Page 14]application appeared to be for projects which would broaden the base for a larger population. Was there any connection between this and a solution to the refugee problem?

Mr. Eban replied that he would like to make one point with great care. He was always happy to discuss the questions which the Under Secretary had raised. A danger that existed however was that if it came to be felt that there were political conditions attached to an Export-Import Bank loan there would be adverse psychological repercussions not only for Israel but for the world at large. The Israelis had suggested that the United States grant more aid to the area. In their discussions with their friends in Africa and Asia one problem they had found was the impression that United States aid had strings attached to it, while Soviet aid did not.

The Under Secretary expressed a wish to clarify his point. We were not seeking to attach conditions. What he had tried to convey was an impression that the Bank was having difficulty in approving the loan from the economic point of view. Could we respond to the Bank’s request to know if there were overriding political considerations? Mr. Eban felt that such considerations arose from the history of the matter. The Under Secretary expressed the view that it would be helpful if Mr. Eban could let him have a written resume of this history as the Israelis saw it. Mr. Eban responded affirmatively.3

Mr. Eban said that he would think that United States policy was to create a position for Israel where it would not need so much outside aid. If Israel’s water resources were not developed, no economist could project Israel’s achievement of non-dependence on foreign aid. This led to a far-reaching conclusion. It was a choice between a stable and solvent Israel and the opposite situation. As to the other issues, Mr. Eban could not admit their relevance. Israel’s application had no relevance to the prospect of large-scale immigration to Israel from the USSR. Mr. Sherman envisaged that the projects had little to do with immigration. They affected persons already in Israel. They were mostly to strengthen existing agriculture. While provision was made for providing homesteads for 10,000 families, this was one of the less important aspects of the Israel proposal. Mr. Eban stressed the need of Israel’s increasing its productivity prior to the mid-1960’s when the German reparations agreement would be concluded. 72,000 immigrants had come to Israel last year. Perhaps only 30,000 would come during the current year. There was no tangible prospect of immigration from the USSR.

[Page 15]

As to the refugees, Mr. Eban had discussed this question with Secretary General Hammarskjold on the previous day. While Israel could not solve this problem, it could contribute to a solution of it, if in fact there were a solution. Israel had already gone on record as advocating the economic development of the area. The Secretary General felt that Israel’s playing its card in isolation would not in itself bring about a solution. The Arabs would reject the Israeli offer, said the Secretary General. Israel’s role, Mr. Eban felt, lay primarily in the matter of compensation. Prime Minister Ben Gurion had made it clear that he had never said that not a single Arab would ever come back to Israel. Israel was rehabilitating many Arabs within its territory. Israel awaited a general refugee solution into which to integrate its particular contribution.

The Under Secretary asked if Mr. Eban would add these additional aspects to his memorandum. Mr. Eban replied affirmatively. Mr. Sherman stated that his impression had been that the hesitation within the Bank arose more from political than economic factors. The Under Secretary said that as the matter had been brought to us by the Bank they were doubtful as to the result of any vote which might be taken.

Mr. Eban concluded by stating that he would hope the Department could make two points to the Bank: 1) there was a United States interest in Israel’s solvency; 2) the political relationship between our two countries, especially as it had developed within the past year, had included an affirmative attitude toward this loan. The Israelis would consult with Prime Minister Ben Gurion and would present their views on the other matters raised by the Under Secretary which would be put in their memorandum.

The Under Secretary said that he had hoped that Mr. Eban would be able to say that the development projects to be financed by this loan would assist in Israel’s capacity to make a contribution to the refugee question. He made clear that this was not a condition which we would attach.

It was agreed that the press would be told that this meeting had been one of a series of talks between the two governments on economic matters.4

  1. Source: Department of State, Central Files, 884A.10/1–1458. Secret. Drafted by Bergus on January 15 and approved by Herter. A summary of the conversation was transmitted to Tel Aviv in telegram 514, January 14. (Ibid.)
  2. For a memorandum of Herter’s conversation with Meir, October 12, 1957, see Foreign Relations, 1955–1957, vol. XVII, p. 759.
  3. Eban transmitted this information and reiterated the points he made to Herter in a letter dated January 21. (Department of State, Central Files, 884A.10/1–2158)
  4. On January 15, Sherman discussed the loan again with Bergus and Rockwell. A memorandum of their conversation is ibid., 884A.10/1–1558.