Foreign Relations of the United States, 1948, The Near East, South Asia, and Africa, Volume V, Part 2

867N.5151/7–3048

Memorandum by the Director of the Office of Near Eastern and African Affairs (Satterthwaite) to the Under Secretary of State (Lovett)

secret

[Washington,] July 30, 1948.

Subject: Israeli Loan Request¹

I am attaching (Tab A) Mr. Epstein’s letter of July 19² requesting affirmative action at this time by the Export-Import Bank and the Economic Officers of the Department on Israel’s loan application. Mr. Epstein also requests an interview with you to discuss the larger objectives of Israel’s loan application.

Following the receipt of this letter, OFD was requested for an opinion regarding this matter. Mr. Knapp’s memorandum of July 30 (Tab B)³ is attached. It is clear from this memorandum that a loan to Israel at this time would be difficult to justify on strictly banking grounds.

In considering the political factors, to which reference is also made in OFD’s memorandum, consideration should also be given to the effect which the extension of the Export-Import Bank loan at this time would have on our relations with the Arab States and on the UN handling of the general Palestine problem.

The immediate extension of a loan would undoubtedly be considered by the Arab States as a unilateral action by the United States in violation of the present truce. The extension of a loan might prejudice the mediation efforts of Count Bernadotte.

It is accordingly believed, as suggested in OFD’s memorandum, that a decision on the extension of an Export-Import Bank loan should await developments with regard to the present truce in Palestine and with regard to Count Bernadotte’s mediation efforts. It seems logical to believe that a settlement of the Palestine question through the United Nations would stabilize the economies not only of Israel but of the Arab States as well and would provide a more stable base for the extension of an Export-Import Bank loan at a later date.

Recommendation:

It is recommended that you discuss this matter with Mr. Epstein and inform him of our views as outlined above.

Concurrences: NEA, UNA, ED, OFD

1. For information on the request of the Jewish Agency for Palestine for an Export-Import Bank credit of $75,000,000, made on December 22, 1947, see editorial note, Foreign Relations, 1947, vol. v, p. 1317. The request was not granted, On June 2, 1948, the Provisional Government of Israel made application to the Export-Import Bank for a credit of $100,000,000, to be utilized primarily to facilitate accomplishment of Israel’s Four-Year Plan for resettlement and development (letter and accompanying memorandum, also dated June 2, 1948, from Oscar Gass, Economic Adviser in the United States to the Provisional Government of Israel, to William McChesney Martin, Chairman of the Expor-Import Bank, 867N.5151/6–248).
2. Not printed; it requested Mr. Martin to give most urgent consideration to the Israeli application for the $100,000,000 credit, now that the fighting in Palestine had come to an end. In reply, on July 26, Mr. Martin expressed his regrets that “reports reaching me do not appear to warrant at this time active consideration of the credit application filed with the Bank by the Jewish Agency for Palestine,” This exchange of correspondence is filed under 867N.5151/7–1948.
3. Not printed.