Foreign Relations of the United States, 1955–1957, Arab-Israeli Dispute, 1955, Volume XIV

415. Memorandum of a Conversation, Department of State, Washington, November 16, 1955¹

Washington, November 16, 1955

SUBJECT

• High Aswan Dam

PARTICIPANTS

• The Acting Secretary
  • Sir Roger Makins, British Ambassador
  • Mr. Coulson, British Embassy
  • Mr. W. Morris, British Embassy
  • Mr. M. T. Flett, Financial Counselor, British Embassy
  • Mr. Eugene Black, President,IBRD
  • Mr. Robert L. Garner, Vice President,IBRD
  • Mr. W. Randolph Burgess, Under Secretary, Treasury
  • Mr. Andrew N. Overby, Assistant Secretary, Treasury
  • Mr. Robert Murphy, Deputy Under Secretary,G
  • Mr. Herbert V. Prochnow, Deputy Under Secretary,E
  • Mr. George V. Allen, Assistant Secretary,NEA

Mr.Hoover explained that the purpose of this opening discussion between United States,UK, and IBRD officials was exploratory, without definite commitments on either side. Sir Roger agreed. Mr.Hoover then explained to Mr.Black that the US and UK Governments supported the IBRD entirely in this matter and asked what the Bank considered to be the chief problems involved.

Mr.Black said the chief question was whether Egypt would obtain adequate foreign exchange and provide enough local currency for the project. The Bank wanted to know whether Egypt was sufficiently serious in this matter to cut down on other projects and tighten its belt for the next ten years. He said the Egyptians have been naive in thinking that a project of this magnitude was easy, and were suspicious that the Bank was dictated to by the United States and United Kingdom. He pointed out that this was the biggest single undertaking the Bank had ever gone into. The Bank felt that $200 million was the most it could lend since this was the maximum amount of loans Egypt could service under present circumstances. Consequentlyany other loans that Egypt incurred for any purpose would reduce the amount of the IBRD loan.

Mr.Hoover asked whether the Bank felt it had to undertake the whole job at one time or could the task be carried out successfully by starting on a part of it. Mr.Black said all the IBRD studies up to the present had indicated that anyone who undertook the project should be prepared to go through with the whole job. Mr. Garner said the hydro-electric and power installations might conceivably be delayed and that the work could be spread out over 25 years but that both of these alternatives were highly undesirable.

Mr.Prochnow asked whether Egypt would derive any income from the project before it was completed. Mr. Garner said that a nominal amount of additional irrigation might be possible after the coffer dam was completed. In response to a question, he said we must expect that Egyptian cotton production will be increased by this project.

Mr.Hoover asked about the dangers of inflation in Egypt as a result of the undertaking. Mr.Black said the dangers were sizeable and that stern management by the Egyptian Government would be required. He pointed out that although the Bank would not advance the entire $200 million at once, it would have to put aside the money, charging Egypt three-fourths of one percent interest on the money being held. He said this would be the longest “standby” operation the Bank had yet undertaken. In answer to a question, he said the Bank would continually review Egypt’s credit worthiness. He was aware that the Egyptian Minister of Finance, Mr. Kaissouni, thought the Bank was too pessimistic regarding Egypt’s ability to repay foreign loans.

Mr. Flett asked whether the hydro-electric development was necessary to make the project financially feasible. Mr. Garner was doubtful that the project could be justified without the income to be produced by the production of electricity, estimated at 700,000kw. originally, to be doubled subsequently.

Mr.Hoover asked how the Bank contemplated the additional $200 million in foreign exchange and $900 million in local currency would be raised. Mr.Black said the additional foreign exchange would probably have to come from grants. The local currency would be raised by taxes and internal borrowings. Mr.Prochnow thought that in order to avoid serious inflation in Egypt, which would increase the cost of construction greatly, Egypt would need a large amount of foreign aid in the form of commodities.

Mr.Black expressed doubt that an actual local contract could be signed between the Bank and the Egyptian Government in less than two years, because of the many preliminary studies and negotiations required. He pointed out that the IBRD had already given the Egyptian Government a letter of intent, several months ago, indicating thatif Egypt would do certain things, the Bank would be able to undertake the project. He said theif was a very large one, as he had explained to Mr. Kaissouni last month in Istanbul and would explain to him again in Washington on November 21.²

Sir Roger asked what the IBRD would require in the way of assurances regarding additional foreign exchange on a grant basis. Mr.Black said that if the Bank had assurances by the United States and United Kingdom Governments that they would continue to support this project and back the Bank, he did not think a definite commitment stated in figures would be required. Mr. Garner pointed out that Egypt would not need substantial foreign exchange for two or three years and that five years would be required for the construction of the diversion tunnels and the coffer dam.

Sir Roger asked specifically what the Bank wanted from the Egyptian Government before the Bank could give Egypt a go-ahead to start the preliminary work on the project. Mr.Black recalled that perhaps the biggestif in the letter of intent concerned a water agreement with the Sudan. Sir Roger thought that four or five months would be required to settle that matter. Mr.Black said that division of the water was not the only problem, since thirty thousand farms and homes in the Sudan would be flooded by the lake. At this point Mr.Black distributed draft copies of a memorandum of what he proposed to say to Mr. Kaissouni on November 21.³ Sir Roger expressed the thought that the opening paragraph seemed somewhat peremptory in its emphasis on what assurances the Bank must have from Egypt. Mr.Black said the language could be made more “diplomatic” as long as the Bank’s requirements were made clear. Mr.Burgess said the memorandum made sense to him. Sir Roger suggested that the Bank take the lead in calling a meeting of United States, United Kingdom and IBRD economists to consider the matter prior to Mr. Kaissouni’s arrival. Mr.Hoover said that Mr.Prochnow would represent the State Department; Mr.Burgess said Mr. Overby would represent Treasury, and Sir Roger said that Mr. Flett would represent the United Kingdom. It was agreed that the meeting would be held on November 17.⁴

1. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Secret. Drafted by Allen.
2. No record of this conversation has been found in Department of State files, but see Document 423.
3. No copy of this memorandum has been found in Department of State files.
4. No account of this meeting has been found in Department of State files.