Memorandum From the President's Deputy Special Assistant for National Security Affairs (Komer) to President Johnson in Texas/1/
Washington, December 28, 1965, 4 p.m.
I've held off as long as I could bothering you with this year's Israeli aid package. We have Israeli requests for $39 million in development loans (nearly double the FY'64 and '65 levels) and for two years of PL 480 Title I, starting with $34 million this year ($32m. FY'65, $23m. FY'63 and '64). However, I see this as strictly a bargaining position.
In economic terms there's no justification for either AID loans or Title I food. Israel is doing far better than several other countries where we've already shifted from concessional AID and Title I terms to Ex-Im Bank and Title IV. Bell again recommends we make that shift in Israel this year, and Mann agrees. They argue that failure to do so soon in Israel undercuts the credibility of our worldwide effort to get out of the aid business once a country is really moving, and makes it tough to cut back in other places. Moreover, past Title I programs have banked us excess Israeli currency, so Title IV dollar sales would make more sense. In general, the harder the line we take the more favorable the balance of payments effects.
Of course, State and AID recognize that the case for Israeli aid is basically political, so each year they buck the decision to the White House. The Israelis claim that economic need is not the real test; they have since 1959 regarded our aid, with some justice, as a defense subsidy in compensation for our reluctance to give them grant military aid or a public defense guarantee. Finally, there is the domestic political factor, especially at a time when we are resuming food to Nasser.
Nonetheless, I think that our Israeli relationship is in good enough shape to sustain some cut in aid and stiffening of our loan terms. We are now selling Israel hardware on concessional loan terms, which weakens its argument for a defense subsidy. Moreover, on the horizon is our contribution to a nuclear desalting plant (though this is more likely an FY 67 or 68 matter) and possibly some jets.
Our aid to Israel has averaged around $80 million per annum 1961-65. Last year we gave $83.6 million ($20 million in DL, $4m. Ex-Im, $32m. in Title I and $27.6 million in a MAP credit for tanks). This year we'd all favor cutting to about $65 million, but the big issue is over loan terms. I'd see three basic choices:
A. The Bell/Mann hard line of shifting Israel to all Ex-Im loans ($20 million) and Title IV ($30 million), plus the $14.4 million in MAP credits already given. This would generate a strong Israeli beef.
B. A soft line, essentially repeating last year's performance of $20 million DL and $32 million in Title I. The Israelis would probably be quite happy with this.
C. Splitting the difference by going for $10 million DL and $10 million Ex-Im, and insisting that Israel take one-fourth of the $32 million PL 480 under Title IV (the same proportion as for Nasser). This option makes a start toward shifting Israel on to harder terms, but cushions the transition. It would generate plenty of Israeli complaints, but not too much to live with so long as Israel sees hope for planes and desalting (State will probably recommend shortly that we sell jets to Israel and Jordan--a repeat of last winter's tank deal).
I'd favor this last as making the most political sense. I've also tried it out on Harriman, who agrees that it's the least we can do. We ought to put it hard to the Israelis as our best offer, but could always retreat if they scream too loudly. Moving pronto on this will also soften Israeli complaints about food for Nasser.
R. W. Komer/2/
Approve Bell/Mann line
Approve soft line
/1/Source: Johnson Library, National Security File, Memos to the President, McGeorge Bundy, Vol. 17. Confidential. Received at the LBJ Ranch on December 31 at 11:45 p.m.
/2/Printed from a copy that bears this typed signature. Bundy initialed below the typed signature.
/3/This option is checked. A memorandum of April 13, 1966, from Komer to the President requesting his authorization to inform the Israelis about the FY 1966 aid levels states that with Johnson's approval, they had delayed informing them "in order to strengthen our hand during the aircraft negotiations." Johnson approved, and a memorandum for the record by Komer indicates that he informed Harman on April 19. (Both in the Johnson Library, National Security File, Country File, Israel, Vol. V)
Sources: Foreign Relations of the United States, 1964-1968, V. 20, Arab-Israeli Dispute 1967-1968. DC: GPO, 2001.