Memorandum of Conversation, by the Acting Officer in Charge of Arabian Peninsula Affairs (Awalt)


Subject: Export-Import Bank Loan to Saudi Arabia.


Although the Bank approved a loan of $15,000,000 for Saudi Arabia on July 20th, several details are still in a state of negotiation before it can be signed.

Action Required:



Mr. Snodgrass called this afternoon to brief me on the progress of the loan agreement. Mr. Snodgrass, in his conversations with the Bank and the Saudi Arabian Ambassador,1 is acting in his official capacity as adviser to the Saudi Arabian Embassy for the purpose of obtaining the Export-Import Bank loan. He stated that there are now three points at issue.

The first involves evasion of the term “interest” which is unacceptable owing to religious considerations. The expression “service charge” had been regarded as satisfactory, but the Ambassador expressed his preference yesterday for “handling commission”. He is rather insistent on that terminology, Mr. Snodgrass reported, while the Bank prefers to keep the expression “service charge”. It is a minor point and should present no real difficulty.

The second point is the grace period before repayment of the loan is to begin. The Ambassador asked for five years, the Bank offered three. There is no period generally applied to loans, but each is decided on its merits. The Ambassador believes Saudi Arabia should have treatment equal to the best accorded any other State. The Bank has now offered four and a half years with repayment to be in twenty-two equal semiannual installments. It should be possible to resolve this difference without too much delay.

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The third issue is an important one. The basic form of the Export-Import Bank contract requires the contracting firm on a project to be jointly responsible with the borrowing Government for proper expenditure of the funds extended by the Bank. Mr. Snodgrass, in view of Bechtel’s poor experience with the Saudi Arabian Government on financial matters, has suggested the money be paid into a Bechtel account for the Saudi Arabian Government, in order to obviate dependence upon the Saudi Arabian Government for drawing on the funds. The Ambassador is adamant that the credits should be extended to the Saudi Arabian Ministry of Finance who will disburse them as needed. I told Mr. Snodgrass that I could appreciate the motives of both sides on this issue, but felt it would be impossible for the Saudi Arabian Government to give way. I asked if it would be possible to open a joint account requiring signatures from both parties for drawing on it. He agreed that that might be a workable compromise.

Mr. Snodgrass also stated that Sheikh Asad did not want to be responsible for the proceeds of the loan in any way and was suggesting to his Government that a special officer from the Ministry of Finance should be attached to his Embassy to be signing officer for all expenditures under the loan.

  1. Asad Al-Faqih, Saudi Arabian Ambassador to the United States.