890F.51/9–544
The Department of State to the British Embassy
Memorandum
Reference is made to the Embassy’s memorandum of September 5, 1944, stating that Gellatly Hankey and Company contemplates offering the Government of Saudi Arabia a loan of 100,000 pounds sterling [Page 747] to be secured by a lien on some or all of the pilgrimage tariff fees to be collected in sterling area countries.
It appears that the Embassy believes that this proposed loan is necessary to accomplish two distinct objectives:
- 1.
- To provide the Saudi Arabian Government with foreign exchange for the purchase of supplies not covered by the joint American-British supply program.
- 2.
- To provide foreign exchange which can be sold to private Arab merchants to stimulate the return of Saudi Arabia’s commerce to normal channels.
As to the first objective, it is hoped that the recent upward revision of the joint supply program will make it unnecessary for the Saudi Arabian Government to purchase additional supplies immediately. The annual pilgrimage is due to take place in the very near future, and presumably the collection of fees from prospective pilgrims has already commenced. If these fees are made available promptly to the Saudi Arabian Government as they are collected they should provide adequate foreign exchange to cover any governmental purchases which may become necessary.
As to the second objective, the Department shares the desire of the Foreign Office to encourage the movement of trade through normal commercial channels. However, it is the Department’s understanding that pilgrim tariff fees have not normally been a source of foreign exchange for private merchants. It is believed that in addition to the foreign exchange proceeds from commercial exports, now substantially curtailed, a major source has been the sovereigns brought into the country by pilgrims and spent by them for goods and services. The merchants then used the sovereigns to finance the importation of goods to replenish their stocks. It appears that the embargo on the export of sovereigns from Saudi Arabia is interfering with this normal procedure. The Department would appreciate the views of the Embassy or the Foreign Office as to how this difficulty can be overcome. It is not clear that the Gellatly Hankey and Company loan would provide an adequate solution. Even if it is determined that the pilgrim tariffs should be used to provide foreign exchange to merchants, it would appear that the collection of the tariffs is so close at hand that an advance against them should not be required.
For the above reasons it is considered that the proposed loan is unnecessary.
The Department sincerely appreciates receiving information from the Embassy regarding the proposed loan. As long as the American and British Governments jointly are furnishing economic assistance to the Government of Saudi Arabia, the Department considers that it would be undesirable if any loan by a private company which involves [Page 748] payment of interest or any other charge by the Saudi Arabian Government were to be made without prior consultation between the American and British Governments. The Department, however, does not consider that the agreement of the two Governments should be necessarily a condition precedent to the conclusion of such a transaction.
In referring to the desirability of making foreign exchange available to Saudi Arabia, the Embassy states in its memorandum that “this is all the more necessary in view of our declared intention to reduce our joint subsidy next year”. In this connection it may be recalled that the Embassy stated in a previous communication to the Department that “it was agreed that the two Ministers should warn Ibn Saud that it was the hope of the U.S. and U.K. Governments that with increased revenues from the oil company and with better economic conditions it would be practicable for the balance of supplies given away by the King without payment to be reduced in 1945”. Although it is hoped that economic conditions in Saudi Arabia will permit a reduction in any joint supply program for 1945, it is understood that both the American and British Governments have expressed a “hope” rather than a “declared intention” in this regard.