166. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon1
- Financial Assistance for Israel
You will recall from your talk with her that Prime Minister Meir has requested $500–600 million in financial assistance.2 Ambassador Rabin has since written to Secretary Laird [Tab C] pinpointing that figure at $519 million in FY 1971 (including $119 million that seems to be dying with the Foreign Military Sales Act).3
In purely economic terms, there is room for some argument over whether that much assistance from the U.S. is justified at a time when you are making an extraordinary effort to hold our budget deficit down. The Israeli economy continues to grow at a rate in excess of 12%, and the corrective fiscal policy measures taken by the Israeli government have been unsuccessful in coping with the widening foreign exchange gap. Therefore, while the main Israeli financial problem is caused by defense purchases, civilian imports continue unchecked.
On the political side, however, there is of course strong argument for meeting a substantial portion of Israel’s requirement. The main point is the need to maintain continuing support for Israel’s military position if Israel is to be in a position of strength from which to negotiate.
There have been two issues—the exact level of assistance and the terms on which it should be offered.
There are two recommendations on the level of assistance:
1. $400 million is the figure that can be fully justified as covering all equipment the U.S. has committed to date. Mr. Weinberger recommends this figure [Tab B]. He feels that letting Israel pay cash for purchases beyond this level would put the Administration in a position to argue with the Congress that Israel would be tightening its own belt at the same time. Israel with its 12% growth rate and rising civilian imports has not done this. If more were needed for purchases later this year an additional appropriation could be requested. The Treasury Department concurs in recommending this $400 million option. In terms of bud[Page 557]getary impact, this option would produce an estimated $130 million increase in FY 1971 outlays.
2. $500 million is the figure recommended by Secretary Rogers and concurred in by Secretary Laird [Tab A].4 Their arguments are:
—It will be better to cover all Israel’s probable needs for this year in one appropriation request. The Israelis will see it as ungrudging support. It is better to take the heat in the Arab world just once, and now is as good a time as any with the UAR on the defensive as a result of standstill violations.
—Israel will need the full $500 million and probably more. If the limit is set at that figure now, we can insist that Israel cover the rest as its austerity measure.
—This is the right time tactically to put this to the Congress.
The budgetary impact of this option would be to produce an estimated $150 million in FY 1971 outlays.
There are two recommendations on the terms of assistance:
1. 7½%, 20-year repayment, 5-year grace period. The interest rate—essentially the same as offered under the Foreign Military Sales Act—would avoid setting the precedent of a concessionary rate for a country with a per capita GNP higher than Italy’s. The long repayment period and the grace period would recognize Israel’s balance of payments problem. This is Mr. Weinberger’s recommendation.
2. Provide the first $350 million at 3%, 5-year grace period and 20-year repayment; provide the remaining $150 million at 7½% with 10-year repayment (Foreign Military Sales Act terms). This is the recommendation of Secretaries Rogers and Laird.
Whichever level and whatever terms you approve, the decision would be communicated to the Congress as an appropriations request under the Jackson Amendment to the Defense Procurement Act.5 Since this comes out of a different series of committees from the military assistance appropriations, Secretary Rogers proposes moving this request before Congress recesses for the pre-election period. It is important to Israel to have this appropriation because some $200 million in payments fall due before the end of the year.
Recommendation: That you authorize an appropriations request for $500 million on the concessionary terms recommended by Secretaries Rogers and Laird.6
- Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–219, National Security Decision Memoranda. Secret. Sent for action. Tabs A–C are not attached. All brackets are in the original.↩
- See Document 162.↩
- The law, passed in 1968, separated foreign military sales from the Foreign Assistance Act of 1961.↩
- A copy of Rogers’s September 26 memorandum, entitled “U.S. Financial Assistance to Israel,” is in the Washington National Records Center, OSD Files: FRC 330–76–0076, Box 8, Israel. Laird concurred on that memorandum.↩
- See footnote 5, Document 157.↩
- Nixon approved the recommendation. See Document 171.↩