The Ambassador in Egypt (Caffery) to the Department of State
Ref: Embtel 938 of Mar. 12, 1951 and Embtel 942 of Mar. 13, 1951 Cairo Despatch 1766 of Jan. 26, 19511
Subject: Long-term Settlement of Anglo-Egyptian Financial Negotiations
Mr. Leonard Waight, U.K. Treasury Representative in the Middle East, and Serag el Din Pasha, Egyptian Minister of Finance, signed a letter of understanding on March 11, 1951, signifying that agreement in principle has been reached on a long-term settlement of Egypt’s sterling balances. The settlement was announced in a press communiqué issued jointly in Cairo and London on March 15. The actual [Page 349] terms of the new agreement are now being drafted and it will probably be signed by the end of this month or early in April.
The agreement in principle includes the following points:
- Under the arrangements now concluded, Egypt and the United Kingdom mutually consent to consider £80 million as minimum sterling held in the blocked (or Number 2) account at the end of the period of releases; the remaining £150 million of the present holdings (approximately £230 million) in the blocked account will be subject to release;
- £25 million will be released immediately following the signing of the agreement; of this sum £14 million will be converted into dollars;
- Thereafter, £10 million will be released every year for 9 years beginning January 1, 1952.
- There will be additional releases commenced in 1951 of £5 million per annum up to a total of £35 million whenever Egypt’s sterling holdings in the No. 1 account fall below £45 million.
- If at the end of the ten-year period all or part of the £35 million has not been transferred from the Number 2 to the Number 1 account, Great Britain will make annual releases of £ 10 million, with final release of £5 million on July 1, 1963;
- The U.K. undertakes to facilitate the supply of petroleum products (excluding dollar lubricants) to Egypt against payment in No. 1 account sterling up to a total of £11 million per annum c.i.f. for 10 years, commencing in 1951.
It will be noted that the settlement represents considerable concessions by both countries from their respective positions of a month ago, which were outlined in Cairo Despatch 1766. Under the circumstances most favorable to the Egyptians, total releases will be completed by January 1, 1960; under circumstances least favorable to Egypt, or in the event of no utilization of the automatic replenishment provision because the No. 1 account total does not fall below £45 million during the life of the agreement, total releases will be completed by July 1, 1963. The U.K. Treasury has provided assurances that the £80 million, which will remain in the No. 2 account after all releases have been made, will not be scaled down unilaterally at any time during the period of the new agreement. Britain also agrees to initiate discussions on settlement of the sterling remaining in the blocked account prior to the termination of the agreement.
Thus, the long-term settlement of the Anglo-Egyptian financial negotiations may be summarized as follows:
|Currently blocked sterling (#2 account)||230|
|Blocked sterling at end of period covered by agreement||80|
|Total releases from #2 to #1 accounts during term of agreement||150|
|Releases from #2 to #1 accounts|
|Of this sum convertible into dollars||14|
|Annual fixed release, beginning January 1, 1952||10|
|Automatic replenishment of #1 account whenever it falls below £ 45 million:|
|annually up to||5|
|or maximum of||35|
|Period of releases 10–13½ years|
|U.K. undertakes to facilitate Egypt’s imports of petroleum products annually, up to||11|
Begin confidential section The successful conclusion of a longterm settlement of Egypt’s sterling balances obviates the need for protracted yearly negotiations on the matter of releases and should help the Egyptian Government in financially programming many necessary developmental projects. The outright conversion of £ 14 million (nearly $40 million) will be a substantial increment to Egypt’s currently favorable hard currency position. Furthermore, the undertaking by the United Kingdom to facilitate Egypt’s imports of petroleum products (e.g., kerosene, gas, diesel oil, lubricants from sterling sources, etc.) up to a total of £ 11 million annually through 1960 should result in considerable savings in dollar terms for Egypt, inasmuch as Egypt’s imports of petroleum products in recent years have been paid for largely with dollars; under the yearly arrangements for 1949 and 1950, the United Kingdom undertook to supply Egypt with petroleum products from sterling area sources up to £5.0 million and £7.5 million, respectively. While the dollar content of petroleum products which Egypt obtains under the terms of this agreement will presumably decrease, Mr. Waight estimates that the average dollar costs borne by the United Kingdom for such products supplied to Egypt will approximate £6.5 million annually. In effect, therefore, the United Kingdom may provide Egypt with dollars and dollar products amounting to approximately $220 million during the next ten years. (End confidential)
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