Aid to Israel for Tank Deal

(October 19, 1964)


With help from the United States, Israel received tanks from West Germany; further aid was discussed, American Development Loans to Israel were recommended as the safest way to secretly help Israel.


Memorandum From the President's Deputy Special Counsel (Feldman), the President's Special Assistant for National Security Affairs (Bundy), and Robert W. Komer of the National Security Council Staff to President Johnson1

Washington, October 19, 1964.

Aid to Israel. Attached are Secretary Rusk's recommendations on FY 1965 aid and various aspects of the tank deal. By wrapping all these up in one package, we can use the plus items to offset those where we simply have to say no.

Thanks to our help, the Israelis have done quite well on tanks. They will get not only 150 German M-48s, with an option on 82 more, but some 250 UK Centurions. The prices are better than we could have given. While the grand total may run over $70 million, it is now for many more tanks (482) than the 2-300 we were talking about earlier. We'll help out on training and delivery, and give the same good terms as on Hawk (10 years, 10% down payment, 3-1/2% interest) for the modernization kits and ammunition we've agreed to sell directly for $24 million or so.

Though pleased with the overall deal, the Israelis have hoped to shave this US price. They've suggested a number of ingenious ways, but DOD and State reject these as infeasible or highly risky. Nor, as Rusk says, do we have any commitment to go even further in helping out on tanks.

If we want to help Israel on political and defense burden grounds, the sensible way to do so is via an indirect subsidy through PL 480 and economic aid (as we've done in past years). Dave Bell points out that Israel hardly qualifies for Development Loans on any economic criteria, but this is still the safest way.

So we recommend that you approve DL to Israel at the same $20 million level as last year (the high side of the range proposed by Rusk), and Title I PL 480 of at least $34 million, which Agriculture believes can be managed. There is pressure for moving Israel at least partly into Title IV this year, but we propose leaving this to negotiation with the Israelis.

Together with the generous tank credit terms, this would add up in effect to a somewhat higher aid level than last year. While it naturally falls short of Israeli desires, we think they'll be satisfied. We must also keep in mind that nuclear desalting may cost us a lot in future years. If you approve this general aid level, we'd like to put out the word quietly right now.2

Mike Feldman
McGeorge Bundy
R. W. Komer3

Attachment

Memorandum From Secretary of State Rusk to President Johnson4

Washington, October 10, 1964.

SUBJECT
FY-1965 Help to Israel

We have come under considerable Israeli pressure to button up various subsidiary aspects of the tank matter and to decide on our FY-1965 aid level--in the last analysis a political decision. I believe that we would do best by handling all these matters as a single package, so that the favorable items can offset those where we must be negative.

Israel has done well on its German and U.K. tank purchases, largely owing to your intervention with Erhard. It is going to get 150 M-48A1 tanks from West Germany in an "as is" condition at a somewhat better price than we could have offered for the same tanks. We will sell kits to modernize the M-48's and provide necessary training, ammunition and support spares. We also found to our surprise that after all Israel's pleas that the U.K. Centurion was no good, it has now signed up for some 250. So Israel will get 400 tanks over the next few years, and the prices for the basic tanks will be fully comparable to what we could offer.

Alleging both economic need and a need for indirect defense subsidy, Israel has requested $29.5 million in Development Loans and $38.5 million in Title I PL-480, (including $17 million already available for 1965). This is a total of $68 million for FY-1965 compared to $20 million Development Loans and $28 million PL-480 last year, or a total of $48 million. Given Israel's continued remarkable economic growth and rising reserves, Dave Bell sees no economic justification whatsoever for any Development Loans (which AID in its presentation to Congress estimated as $0 to $10 million, as compared to $20 million FY-1964). Since the U.K. and German prices are most reasonable, we do not have a commitment to help out indirectly on the tank deal. Although Prime Minister Eshkol may have the impression from the conversations in Washington that we intended to be of financial as well as other assistance, the record shows that the only concrete suggestion we made was that we would consider such help if the European tanks turned out to be substantially more expensive than those from the United States.

Recommendation:

Balancing off the many factors involved, I recommend that you approve the following proposals:

1. PL-480: Meet the Israeli request with a program of approximately $21.5 million which, added to the amount of $17 million already available for 1965 in the current agreement, comes to a total of $38.5. This could be on the same terms as last year taking account of changes in PL-480 legislation and the need to maintain usual marketings, except that $7 to $10 million worth would be repayable in dollars rather than local currency, but this amount would not necessarily represent sales of beef. The dollar sales would be included in order to establish the principle that the time has come for Israel to move to a Title IV program.

2. Development Loans: Though Dave Bell sees no case based on economic aid criteria, there are valid reasons for Development Loans in the range of $10-$20 million on the same terms as last year. Request you indicate the amount you approve.

3. Helping Israel get Tanks: On top of our all-out efforts to date: (a) we have speeded up the flow of U.S. replacement tanks to Germany so the others can be released; (b) we have provided technical data requested by the Israelis; and (c) as an added concession, DOD proposes to give Israel favorable MAP credit terms similar to those on Hawks (10 years at 3-1/2% with only 10% down payment) for the modernization kits, spares and ammunition which must be purchased from us. As yet we do not have firm dates when the Italians need to have the overhaul and conversion kits on hand. Through the use of overtime, DOD can probably deliver the necessary overhaul and conversions kits to Italy on a schedule dovetailed with the arrival of M-48's from West Germany.

4. Sale of Kits and Conversion: During Prime Minister Eshkol's June visit we were given to understand that, in the interests of secrecy, M-48's obtained from West Germany would be overhauled and fitted in Italy with diesel engines and large guns. It was also contemplated that the sale of the U.S. conversion kits would be through a third country. The Israelis are now urging that sale of the kits be made directly to Israel and that some or all of the conversion be undertaken in Israel. They contend that this procedure will be more secure. We should be openminded on this and hear them out, but accede to the Israeli suggestions only if we are satisfied that they do provide adequate security from the U.S. point of view.

5. Tank Training: The Israelis originally wanted to have almost 100 people trained in the U.S. For obvious security reasons, we got them to cut this to 26 plus visits by a few engineers to study conversion techniques. We think we can handle all of these visitors if properly spaced.

6. Surplus Prices: The Israelis have urged that we provide our tank kits and ammunition at "surplus" prices, to save them money. DOD says it simply cannot do so, because practically all is new output. The kits represent special orders; the ammunition is going currently to U.S. forces.5

While the above does not meet all Israeli requests, it adds up to a generous package, which should relieve any pre-election pressure on us. If you approve, I propose to communicate these decisions to the Israelis shortly.6

Dean Rusk

Notes

1 Source: Johnson Library, National Security File, Country File, Israel, Vol. III. Secret. Filed as an attachment to an October 27 memorandum from Bundy to Rusk stating that the President had approved the recommendations in Rusk's October 10 memorandum on FY 1965 help to Israel, with a Development Loan level of $20 million and a P.L. 480 Title I program for FY 1965 of at least $34 million, with any additional Title I or Title IV to be subject to negotiation between the United States and Israel. The October 10 memorandum is printed below.

2 The President initialed his approval.

3 Notations in Bundy's handwriting appear next to the three signatures. One next to Komer's signature reads: "He did it. McGB." One next to Feldman's signature reads: "He agreed." And one next to Bundy's signature reads: "This is a very good arrangement. McGB."

4 Secret; Exdis-Tan. The source text is erroneously dated October 1.

5 There is no indication of the President's approval or disapproval of the recommendations.

6 A November 15 exchange of letters between Solbert and Colonel Ron outlined the terms for procurement of articles and services relating to the conversion, overhaul, and support of M48 type tanks obtained from sources other than the United States. Solbert's letter stated that if the nature of the transaction should become public knowledge before the U.S. Government determined that secrecy was no longer required, it might exercise its right of cancellation. (Johnson Library, National Security File, Files of Robert Komer, Israel Security, Tanks, July 1964-December 1964).


Source: United States Department of State