Memorandum of Conversation, by Mr. Richard H. Sanger of the Division of Near Eastern Affairs

Participants: Sheikh Asad al-Faqih—Saudi Arabian Minister
NEA—Mr. Deimel1
NE—Mr. Merriam2
Mr. Sanger

After considerable discussion of Saudi Arabian commodity needs, the Saudi Arabian Minister said that he had been instructed by his Government to approach the United States with a request for a $20,000,000 loan from the Export-Import Bank.3 $15,000,000 of this amount he hoped would be the $15,000,000 which has been ear-marked on the books of the Export-Import Bank for approximately 18 months. The Minister reminded those present that in January [February?] of 1947 Sec. Marshall had told Crown Prince Saud4 that under certain circumstances it might be possible to expand this $15,000,000 to a total of $20,000,000 or $22,000,000 provided the railroad in Saudi Arabia was privately financed. Sheikh Asad al-Faqih pointed out that the railroad, which has been started from Dammam through Dhahran to Abqaiq is being financed by Aramco and not by [Page 227] the Government of Saudi Arabia. He said that the $15,00,000 was needed for development projects in his country, such as public utilities, airport expansion, etc. and that the $5,000,000 was to cover purchases which have already been made by the Government of Saudi Arabia in this country. Although some of these purchases were electrical equipment, they were mostly made up of grains, other foodstuffs and various non capital items, such as trucks and textiles.

Mr. Merriam told the Minister that his request would be given earnest consideration. Although it was probable that the Minister’s request for a $15,000,000 loan for development projects would meet with favorable consideration, Mr. Merriam said that in his opinion the Export-Import Bank was not now in a position to finance current noncapital imports such as foodstuffs.

It was agreed that Sheikh Asad al-Faqih would make a formal presentation of this request to the Export-Import Bank; and that the Department would have explanatory conversations regarding these matters with the Export-Import Bank.

  1. Henry L. Deimel, Jr., Special Assistant in the Office of Near Eastern and African Affairs.
  2. Gordon P. Merriam, Chief of the Division of Near Eastern Affairs.
  3. The Export-Import Bank, on January 3, 1946, approved a $25,000,000 line of credit to Saudi Arabia; see footnote 7, Foreign Relations, 1946, vol. vii, p. 739, In a memorandum of January 16 to Mr. Henderson, Mr. Merriam stated that “Ten million of this was made available to the government of Saudi Arabia beginning in August 1946. This money was used for such items as cereals, sugar, textiles, automotive equipment, agricultural equipment and hospital supplies”. Mr. Merriam concluded his memorandum with the following observations: “(a) For many years foreign governments and private firms have been making money available to King Ibn Saud to cover his ever increasing deficits. Unless this practice is checked it will go on until a financial crisis is induced in Saudi Arabia of a magnitude far greater than the present serious but limited emergency.

    “(b) In view of King Ibn Saud’s ever growing income there is no reason why he cannot put his financial house in order and obtain loans on their economic merits and not on the basis of politics.

    “(c) The Department would be happy to see the Export Import Bank ask the Government of Saudi Arabia to produce a budget and other data such as is demanded of governments requesting loans from banks.

    “(d) If sufficiently accurate data of this sort can be obtained and if the bank feels that on the basis of this information, this would be a sound loan, the Department would have no political objection to the loan unless in the meantime new political factors bearing on the matter should supervene.” (890F.51/1–1648). A marginal notation by Mr. Henderson gave his approval of the memorandum.

    Regarding the making available of the $10,000,000 to the Saudi Arabian Government in August 1946, see telegram 185, July 10, to Jidda, and footnote 2, Foreign Relations, 1946, vol. vii, p. 746.

  4. See Mr. Sanger’s memorandum of conversation, dated February 18, 1947, ibid., 1947, vol. v, p. 1331.