890F.51/3–2146: Telegram

The Minister in Saudi Arabia (Eddy) to the Secretary of State

76. King told me at Riyadh that conditions attached to Export-Import Bank loan proposal are not acceptable to him and that he could not submit to bank control of funds borrowed. He proposed a flat 10 million dollar loan with no restrictions as to use repayable in 5 years in 5 installments from oil royalties.

In audience with King and also in private conversations with Amir Faisal11 I made clear my personal opinion that Export-Import Bank would not make any such loan though I would transmit proposal to Dept for official reply. It was clear to me that King does not expect affirmative reply but made the proposal only to prevent open break in negotiations. He repeated frequently that a loan is less important than preventing the appearance of a break in negotiations. SAG will seek to borrow commercially.

[Page 741]

Amir Faisal recommends confidentially and I concur that Export-Import Bank loan be permitted to die quietly without obituary. Improvement in Saudi economic conditions, prospect of greater royalties can be cited as reasons for postponement of action.

King objected to three conditions of Export-Import Bank loan:

Sweeping mortgage of any and all oil royalties present and future which he said would put his person and kingdom in receivership and reflect upon his trustworthiness.
Control or veto of purchases and projects in effect permitting a bank to dictate what his people could eat or wear.
The service charge which payable separately and at distinct times from the principal is in effect interest. His religion forbids this though he could pay costs required if expenses were added to and included in price of purchases.

I told the King that inclusive mortgage of all royalties which he interpreted as infringement of his sovereignty is merely conventional banking language common to similar transactions of Export-Import Bank everywhere. I also reminded King that service charge had been anticipated in my conversations with him and his Ministers and had been clearly stated in draft summary delivered in early January without any intimation to my Govt that it would prove an obstacle. Discussion, however, proved useless as King had made his decision and would not reconsider. He did not seem concerned about success or failure of a loan but only anxious to prevent any misunderstanding with US Govt with whom his “relations have been and will always remain most friendly”.

Full report follows by pouch.

  1. Saudi Arabian Minister for Foreign Affairs.