212. Memorandum From Secretary of Defense Brown to President Carter 1
SUBJECT
- Supply of Arms to Egypt and Israel in Connection with the Peace Treaty
During our trip I discussed the supply of arms and other facilities and services and their funding with Egyptian Minister of Defense Kamal Ali and with Israeli Minister of Defense Ezer Weizman. With the Egyptians, I described an implied release, after a peace treaty was concluded, of a number of equipment items (Tab A), with USG financing of $1.0 to $1.5 billion over three years. The funding would be part cash, part FMS credits, the mix and terms to be determined. With the Israelis, I indicated that, in the case of a peace treaty, we would make certain equipment items available (Tab B) and would assist in the relocation of air bases from the Sinai to the Negev. The total funds would (in addition to the current annual $1.785 billion) be $2.0 to $2.5 billion over three years. Again, the mix of grants, credits, and sales was to be determined. With both, I stressed that the U.S. Government was prepared to make these commitments in the context of the Peace Treaty and subject to consultation with and approval of Congress. (Weizman will be in Washington Friday for discussions on this subject.)2
Financing will be critical to accomplishment of these commitments. The options for financing as I see them now are as follows:
| OPTIONS | |||
| A | B | C | |
| Egypt ($1.5 billion) | |||
| Terms: credits | 40% ($0.6B) | 50% ($0.75B) | 60% ($0.9B) |
| cash | 60% ($0.9B) | 50% ($0.75B) | 40% ($0.6B) |
| Israel ($2.5 billion) | |||
| Terms: grants | none | $1.0B | |
| FMS credits | $2.0B | $1.5B | |
| Other loans | $0.5B | none | |
We should begin negotiations on a conservative level of U.S. commitment, but be prepared to move to a level you now decide on. For Israel, I would strongly recommend that you decide now that we will be prepared to seek grant aid for the airbase relocation, in the amount of $1.0 billion. Since the U.S. intends to perform all the work on the contract, much of this amount would be spent in the United States and not adversely impact on balance of payments. The rest, $1.5 billion, would be FMS credits (of which half is customarily forgiven). This extra $1.5 billion could be spent, in a mix to be determined by the Israelis, among equipment, extras for the relocated airbases, and other Sinai relocation costs. For Egypt, I recommend a 50–50 credit-cash split. The cash for sales would have to be found by them, presumably from Saudi Arabia, though this is chancy given likely violent Arab League reactions to the Peace Treaty. We could also seek grants from other western countries and from Japan. If Egypt obtains such a Saudi or other grant, then their terms would be equivalent to the terms we extend Israel for FMS credits, i.e., half forgiven. Alternatively, we might extend Egypt the FMS terms (half forgiven, the rest paid over 20 years beginning 10 years later, at commercial interest terms) that we customarily provide Israel.
The total package shown amounts to $4.0 billion over the three year period, although the amounts required to be appropriated would be much less. The first year costs and their financing will have to be determined based on how quickly we can get programs going. We can envisage, for instance, that an Egyptian program, front-loaded, might require $300 million in FMS financing in the first year. The airbase relocation will require as much as $500 million in the first year, in order to insure completion within the three year limit. These would require an FY 1979 supplemental to get going, while other initial costs might be accomplished by a change in the FY 1980 budget proposal.
The U.S. Government will also need to consider economic aid for Egypt. Egypt’s economy is not in good shape, and such aid might be very important to Sadat’s political survival. He may well have difficulty in obtaining continued assistance from other Arab states, including Saudi Arabia, which in the past has amounted to around $500 million a year in non-military aid.
Recommendation: That you authorize me to negotiate financial arrangements (covering a three year period) with Israel and Egypt up to, but not exceeding the following:
a. Israel: $1.0 grant assistance for airbase construction (Israel would pay all costs above this amount), and $1.5 billion FMS (half forgiven) credit.
[Page 743]b. Egypt: $750 million (none forgiven) FMS credit, and $750 million in cash sales to be financed by others.
- Source: Carter Library, National Security Affairs, Staff Material, Middle East, Subject File, Box 13, Egypt: Arms and Military: 1–7/79. Secret. Brzezinski wrote in the upper right-hand corner of the memorandum, “LD, WQ—need quick reaction. ZB.” Smith forwarded a copy of the memorandum to Vance, at Brown’s request, under a March 15 covering note. Vance’s copy, bearing the stamped notation “CV,” indicating that Vance saw the document is in the Department of State, Office of the Secretariat Staff, Cyrus R. Vance, Secretary of State—1977–1980, Lot 84D241, Box 5, Middle East—1979.↩
- See footnote 2, Document 217.↩
- No classification marking.↩
- Secret.↩