Foreign Relations of the United States, 1952–1954, The Near and Middle East, Volume IX, Part 1

884A.00 TA/11–1753: Telegram

No. 731
The Chargé in Israel (Russell) to the Department of State

secret
priority

Tel Aviv, November 17, 1953—5 p.m.

598. Joint Embassy-USOM. With reference to Usfoto 205¹ and Embassy telegram 592,² USOM and Embassy officers met yesterday with Finance Ministry officials and Kollek, Director-General, Prime Minister’s office, concerning Israel’s short term debt. Despite our efforts to obtain specific data to support deficit estimates Finance Ministry was unable to present precise figures. Although some facets of this problem remain obscure and will be explored in more detail tomorrow when Israel officials will present more precise figures on October-December position, the following is the basic situation as it emerged from yesterday’s discussion:

(1) Evidence submitted indicates that unexpected problem did not arise because expenditures have exceeded budget or from failure of most sources of income to equal budgeted amounts.

(2) The immediate situation, although difficult, is not as extreme as is reflected by gross figures submitted in Washington November requirements $18,000,000 and revenues $8.8 million. Actual set requirement new money to meet expenditure-receipt gap during balance of November was given by officials here as 44,000,000. None of these officials indicated that default was planned or necessary in the absence of United States Government’s cash relief, although they were careful to point out that November-December situation was more difficult than they had anticipated because of the failure of their October operations to work out as planned. Furthermore, Israel officials made it clear that delay in release of grant-in-aid funds was not a primary factor in November-December payments problem. Finally, one of Israel officials implied that cash release was being pressed by Israel Embassy Washington in order not to let opportunity challenge section 105³ to go by default.

(3) In October unexpected difficulties arose because of a combination of factors, including lower than expected United Jewish Appeal, cash receipts and transfer bulk of this income to repayment United Jewish Appeal bank loans incurred in early part of the year; tightening up of private banking and individual credit sources, perhaps partly as result uncertainties repayment created by suspension United States aid. End result of these October developments was reduction Israel’s cash balances in New York banks and increased borrowing on less than 60 day terms which of course aggravates November-December problem.

(4) A further disappointment has resulted from fact that New York banks, whose representatives recently visited Israel, are not prepared to help in meeting December problem as had been hoped.

(5) It would appear that, in absence of United States Government cash release, Israel Government would have to look to following possible sources to meet problem during the balance of the year:

(a) United Jewish Appeal bank borrowings (this appears a reasonable possibility in view of fact that United Jewish Appeal reduced its indebtedness to New York banks from $17,000,000 end of August to approximately $5,000,000 at end of October);

(b) Israel Government is working on project through Bank Leumi to obtain through private and unofficial channels dollar credits against future repayment in sterling from citrus export receipts;

(c) Recourse to private banking and individual sources to refinance less than 60 day credits coming due before end of the year. It is possible that this source may prove more responsive now that some of uncertainties in financial picture have been removed by resumption of United States aid.

The preponderance of the evidence available indicates that the immediate problem is of smaller dimension than set forth by the Israel representatives in Washington and that, in the absence of unforeseen unfavorable developments, the Israel Government should be able to avoid a general default in the near future.

We do not recommend cash release. Situation will, however, require constant review.

Any significant facts emerging from tomorrow’s meeting will be cabled.

Russell

1. Not printed.
2. Document 729.

3. Reference is presumably to section 105 of the Mutual Security Appropriations Act for the fiscal year ending June 30, 1954, approved Aug. 7, 1953 (P.L. 218; 67 Stat. 478). Section 105 of the Act reads in part as follows:

   “None of the funds provided by this Act nor any of the counterpart funds generated as a result of assistance under this or any other Act shall be used to make payments on account of the principal or interest on any debt of any foreign government or on any loan made to such government by any other foreign government; nor shall any of these funds be expended for any purpose for which funds have been withdrawn by any recipient country to make payment on such debts.”