6. Memorandum by the Secretary of State’s Special Assistant (Greene)1

The Secretary, pursuant to the recommendation in this paper, called Mr. Waugh this morning2 and said he thought it would be a good idea to go ahead with the $24,200,000 project if Mr. Waugh found it acceptable economically and financially.

Mr. Waugh said they would go ahead on the $24.2 million. He said they would not like the small amount. The Secretary said they were lucky to get that. Mr. Waugh said he thought he would tell them so.

Mr. Waugh said also that he thought the Development Loan Fund was not operating on sound principles, that we were encouraging applications in sums vastly in excess of what could be granted, and the turn-downs would create a vast amount of ill will. He said they are operating contrary to the principle which the Secretary had in the past enjoined upon him which was not to encourage expectations which could not be realized. He said he wanted to talk to the Secretary about that situation.

The Secretary then telephoned Ambassador Eban3 and told him that he had spoken with Mr. Waugh about getting started along the lines reflected in the Ambassador’s conversations with Mr. Herter. The Secretary suggested to the Ambassador that he be in touch with Mr. Waugh, which Mr. Eban said he would do.4

JG
[Page 17]

Attachment

Memorandum From the Under Secretary of State (Herter) to the Secretary of State5

On January 28 I had a long talk with the Israeli Ambassador with respect to the pending Export-Import Bank loan for water development in Israel.6 Prior to the conversation, I had canvassed the history of the case very thoroughly and had found that over the years we had taken a pretty consistent position that, if a loan for that type of water development were approved by the Export-Import Bank from a financial and economic point of view, we would favor it.

I also had a talk with Sam Waugh and Douglas Dillon. At my request, Mr. Dillon had asked Mr. Waugh to ascertain whether the $40 million contemplated loan did not contain separable items. Mr. Waugh advised me that he had studied this carefully and that there were separable items which would allow of carrying out two water projects: one in the Northeastern area, and one in the Tel Aviv area, both very desirable projects. The total amount necessary to finance these two projects would be $24.2 million. Mr. Waugh gave me the following assurances: 1) that a loan in this amount would decrease Israel’s need for foreign exchange for imports, and 2) that particularly with the growth in citrus agriculture envisaged in these projects, Israel’s earnings of foreign exchange would be increased. He likewise told me that he planned to canvass his Bank Board members to see if they would approve this smaller loan, assuming that we might have no political objections thereto.

My conversation with Eban is attached as Tab A. There is also attached, as Tab B, Mr. Eban’s history of discussions with the State Department in a form very similar to that contained in his letter to Arthur Dean. NEA’s analysis of this historic résumé in the light of our own records is attached as Tab C.7

As you will see from my conversation with Eban, I told him that I could give him no definitive answer to the specific questions he was asking with respect to the State Department’s attitude until I had had an opportunity to consult you. However, in view of the fact that Eban [Page 18]had made the flat statement to us that the granting of this loan would assist Israel’s capacity to help out in the refugee problem; that he has been more forthcoming with respect to Israel’s readiness to make an offer on the refugee problem than heretofore; and that the immigration problem has almost subsided as a practical matter, I would make the following recommendation.

Recommendation

I would recommend that your office telephone to Mr. Waugh to advise him that in the light of our recent conversations with Ambassador Eban and the long history of the State Department’s relationship to this particular water problem, the Department of State would not look unfavorably upon the Bank’s making the smaller loan which Mr. Waugh and I discussed. If you agree with the foregoing, I would suggest your office then advise Ambassador Eban that we understand that the Bank would be acting shortly in the matter and that he should get in touch directly with Mr. Waugh for his answer.

Concurrences

Mr. Dillon concurs in this recommendation. I have advised Mr. Stuart Rockwell and Mr. Villard that I am making the recommendation.

C.A.H.
  1. Source: Department of State, Central Files, 884A.10/2–458. Secret.
  2. A memorandum of Dulles’ telephone conversation with Waugh at 10:40 a.m. is in the Eisenhower Library, Dulles Papers.
  3. A memorandum of Dulles’ telephone conversation with Eban at 10:47 a.m. is ibid.
  4. Eban called on Waugh on February 5 and 6 to discuss the Export-Import Bank loan. In a letter to Waugh, February 7, he summarized the discussion at the two meetings and detailed how the $24.2 million would be used. A copy of his letter is attached to a memorandum from Dillon to the Acting Secretary of State, February 12. (Department of State, Central Files, 884A.10/2–1258)
  5. Secret. Drafted by Herter and cleared by Dillon.
  6. A memorandum of this conversation is in Department of State, Central Files, 884A.10/1–2158.
  7. None of the tabs is attached to the source text. Presumably Tab A is the memorandum of conversation referred to in footnote 6 above; a copy of Tab B is in Department of State, Central Files, 884A.10/1–2158; a copy of Tab C is ibid., NEA Files: Lot 60 D 580, Israel—Export-Import Bank Loan.