Foreign Relations of the United States, 1964–1968, Volume XVIII, Arab-Israeli Dispute, 1964–1967

389. Memorandum From the President’s Special Assistant (Rostow) to President Johnson¹

Washington, February 13, 1967.

SUBJECT

• Your Talk with Feinberg—1:00 p.m. Tuesday, 14 February²

In preparation for your talk with Abe Feinberg, you ought to know where we stand on this year’s Israeli aid requests. State, Defense and AID are putting them all together, and Secretary Rusk will have one package of recommendations for you in the next two weeks.

My preliminary feeling is that aid for them will be tough this year and that you may want to use your talk with Feinberg to lay the groundwork for a slim response. We need not feel defensive about this since our aid in FY 1966 was the highest single year ever by 25% because of the plane sale (see attached chart).³

The Israelis argue that they need continued help over the next 2–3 years while they work their way through the austere economic measures necessary to make them more competitive in European markets and help close their trade gap. They point to their especially high debt repayments and their heavy defense burden. But given their substantial foreign exchange reserves, some of their points are exaggerated by normal aid standards.

These austerity measures have thrown Israel into a recession, which we expect to be short-lived. The government allowed Israel’s growth rate to slip to 7% in 1965 (previously over 10%) but was shocked when it slumped to 1–2% in 1966. This is probably a main reason for their aid requests.

They’ve made six separate requests, totaling at least $75 million:

1. Grant military aid—$9.4 million. They’ve asked for 200 armed personnel carriers and $2 million in spares for tanks we’ve already sold. They are clearly trying to match our December Jordan package. Since their raid caused that package, no one here wants to give in on this. Besides, we’ve never given grant military aid to Israel, and no one feels we should break that precedent, especially so soon after the Israeli raid. JCS sees no serious military requirement for the APCs. However, Eshkol considers the APCs important, and we’ll undoubtedly end up considering a credit sale, though State and Defense oppose.

2. Credits of $14 million to buy maintenance items for Hawk missiles and tanks. They want the same terms we gave on the 1962 Hawk sale (10% down, 10 years, 3.5%). Defense doesn’t believe we should finance maintenance and, in any case, couldn’t come close to 1962 terms today. However, if you feel it’s essential to come up with some military help, there might be a little give here with harder terms.

3. Development loans of $20 million. They got only $10 million last year (plus $10 million Ex-Im), and we’ve already given them that $6 million left over from FY 1963. With today’s even tighter aid criteria it will be tough to justify any AID lending at all, though Ex-Im loans are still possible. Even the Israelis know this request is unrealistic.

4. PL 480—$32 million (same as last year). Congress has been increasingly critical of highly concessional sales to Israel where per capita GNP is already higher than in several European countries. However, we could probably come up with $23 million on harder terms, even without wheat.

5. Deliver 8 aircraft next December instead of the 4 now scheduled. We all feel this would be desirable but, since these are new production items needed in VietNam, we’ll want to hear Secretary McNamara’s final view.

6. An exception to AID policy to let Israel bid on AID-financed fertilizer purchases for Korea and VietNam. AID will probably come around on this since we can pay half in dollars and half in excess Israeli pounds.

In addition, we have just agreed to increase their cotton textile quota by 35%.

In the background is desalting. Ambassador Bunker’s report will be ready shortly. His economic study⁴ appears to show that for either a nuclear or an oil-fueled plant an outright grant of some $50 million would be required to produce water at realistic cost. He found Eshkol more relaxed on the timetable than he had expected. It doesn’t look as if we’ll be spending much money on this in FY 1967, but if we ever decide to go ahead, it will cost us quite a bit. Of course, you will want to hear from Bunker before you say anything to Feinberg that could be read as a commitment.

What this adds up to is that—with last year’s high aid level behind and desalting possibly still ahead of us—we ought to be able to make a low year stick this year. Therefore, I’d propose leveling with Abe, explaining your problems and asking his help in making them clear to others.

If you have a moment, it would be worth your time to skim the attached description of the overall US-Israeli balance sheet.⁵ It was done for our panel of outside consultants on Middle Eastern affairs who met here over the weekend. It’s a neat and straightforward statement of what we’ve done for Israel and how our relationship has been pretty much a one-way street. You might want to get this balance across to Abe as a means of letting him know there are limits.

Walt

1. Source: Johnson Library, National Security File, Country File, Israel, Vol. VI. Secret.
2. The President met with Feinberg from 1:20 to 1:47 p.m. on February 14. Feinberg had requested an appointment with the President before departing for Israel on February 18. (Ibid., President’s Daily Diary) A February 13 memorandum from Saunders to Rostow states that he had recommended that the President see Feinberg because circumstances might force substantial reductions in the previous year’s levels of economic and military aid and the President himself should lay the groundwork for this. (Ibid., National Security File, Country File, Israel, Vol. VI)
3. The chart is not attached.
4. Bunker enclosed a February 15 memorandum on “Israeli Desalting Project: Economic and Engineering Aspects” with a February 17 letter to Rostow. (Johnson Library, National Security File, Subject File, Desalting Projects, Vol. II)
5. The attachment, unsigned and undated, entitled “U.S.-Israel Relations,” is not printed.