MILITARY AND ECONOMIC ASSISTANCE TO ISRAEL
As requested I have reviewed the recommendations from the Department and it is my own recommendation that you respond to Israel's request as follows:
A. You authorize the sale rather than grant of 100 APC's to Israel, half the number Israel has requested on a grant basis--on current non-concessional credit terms. The delivery schedule should be based simply on availability rather than stretched-out delivery. Israel should be requested to limit or avoid publicity on the transaction. Key congressmen should be briefed, using modernization needs as the basic justification for the sale. In my view there will be no difficulty with the Congress on this point. This is in essence the fallback recommendation of the Department except for the delivery schedule which the Department would stretch out and which in my view is unnecessarily harsh on Israel.
B. I agree with the Department's recommendation that if manufacturing facilities for the Skyhawk A-4H aircraft make a speed up impossible, we will not be able to grant this request. It should be recalled, however, that at the time of the Jordan proceedings in the Security Council we did commit ourselves to an expedited schedule for delivery of these airplanes.
C. I agree with the Department's recommendation that we agree to Israel's request to establish "fifth echelon" facilities for the Hawk missile system insofar as such facilities relate to maintenance rather than production or resale of missiles.
D. I recommend that we agree, as a one time exception to policy, to provide $4 million credit for Hawk spare parts and $10 million for tank spare parts, this latter figure being the figure mentioned in the original deal. The Department's fallback position calls for a $9 million credit. I believe we can meet Israel's request for an additional $5 million credit, since a credit rather than a grant is involved and the difference is relatively small. The terms should not be the more onerous terms proposed by the Department but rather the terms of the original deal; i.e., a 3-1/2% interest rate and a pay back period of 10 years. To overcome the objection that this would establish a precedent in a supplementary credit deal, the original contract could be re-written to make this credit part of the original commitment.
A. Israel has requested development loans of $20 million. The Department would deny this request and refer Israel to the Export-Import Bank. I recognize the difficulties involved here but perhaps we could consider settling this request, as was done last year, by a $10 million development loan and by a $10 million Export-Import Bank loan, or if this is not possible, by assuring prompt and favorable consideration of the $20 million loan by the Bank.
B. I agree with the Department's recommendation that we agree to Israel's request for permission to bid on AID supporting assistance purchases of potash and phosphate fertilizers primarily for South Viet Nam and South Korea for a period not to exceed 12 months. This is also to our advantage since it involves Israel in aid to South Viet Nam.
C. I recommend that we agree to Israel's request for commodities under the Food-for-Freedom Program by providing commodities, excluding wheat, of $26.5 million on the basis of Israel's requirements and our own availabilities. Israel has asked for $35-36 million including wheat. The Department recommends a range of $19 to $23.5 million. I believe the figure I suggest $26.5 million is a good compromise. The Department's proposals, moreover, are too severe with respect to payment and Israel's are too liberal. I suggest a compromise, i.e., 50% local currency and 50% dollar credit sales to be paid over twenty years but at the same interest rate as last year, i.e., 2-1/2%.
D. I agree with the Department's proposal that we give sympathetic consideration to further support of Israel's assistance programs in Africa along the lines of past support for programs which indirectly benefit us (Central African Republic, Chad, and Dahomey), within the limitations imposed by the revised strategy for United States aid to Africa.
What I have suggested, in my view, is a reasonable compromise which will be acceptable to the Israelis and to American public opinion and would not prejudice our relations with Arabic states.
Finally, I should like to suggest as a replacement for Ambassador Ellsworth Bunker as your representative on the American-Israel Joint Nuclear Desalinization project that you consider the appointment of Jack Valenti. This would follow the tradition of Presidents Truman and Eisenhower who appointed Jack's predecessor at the Motion Picture Association, Eric Johnston, as a special Ambassador in this area. Jack Valenti shares your concern, vision and foresight in this vital area and would bring a practical rather than a bureaucratic approach to the solution of the problems involved. This, I know, would be a highly agreeable appointment to all concerned.
Arthur J. Goldberg
Source: Johnson Library, National Security File, Country File, Israel, Israeli Aid, 5/67. Secret. Filed as an attachment to Document 416.