Foreign Relations of the United States, 1952–1954, Eastern Europe; Soviet Union; Eastern Mediterranean, Volume VIII

782.5 MSP/5–853

No. 476
Memorandum of Conversation, by the Ambassador in Turkey (McGhee) ¹

confidential

Ankara , May 2, 1953.

Participants:

• Prime Minister Menderes
• Ambassador McGhee
• Mr. Leon Dayton, Chief,MSA

Mr. Dayton and I called on the Prime Minister today at our request. There were present, in addition, Mr. Birgi and Mr. Görk. The meeting lasted a half hour. Other subjects discussed in the same meeting were reported in the immediately preceding despatch, copies of which have been forwarded to Mr. Richards.²

1. MSA Program

I stated to the Prime Minister that, as he knew, Mr. Dayton had recently returned from a trip to Washington where he undertook to obtain solution to several outstanding problems affecting the Mutual Security Program in Turkey, which he had discussed with the Prime Minister before his departure. I said that I would like him to give the Prime Minister an account of the results of his conversations with Mutual Security officials in Washington.

Mr. Dayton expressed pleasure in being back in Ankara and of having this opportunity to bring to the Prime Minister personal greetings from Governor Stassen. He said that he felt his trip to Washington had been well worth while and that in terms of the projects now being discussed with various agencies of the government, it had been entirely successful. He briefly outlined the Basic Materials Program, the Industrial Development Program, the Program to Stimulate the Flow of Foreign Private Capital and the Program to Implement Section 115k.³ The Prime Minister recalled our initial discussions on these programs and expressed pleasure that they were now approved.

Mr. Dayton then said that as the Prime Minister might suspect, the good news was accompanied by some problems. He told him that these problems grew out of our participation in two of the major projects in Turkey, the Zonguldak Coal Basin Development and the Sariyar Hydro-electric Project. He said that for some time he had been aware of the fact that these projects were not going well. He pointed out that he had tried unsuccessfully to work out mutually satisfactory arrangements with Eti Bank which would give greater assurance that the projects would be completed on time at somewhere near the estimated cost. Also that the aid funds programmed for these projects would be efficiently used. Mr. Dayton said that after a rather thorough personal investigation, he had become convinced that both the Turkish and American Governments were paying for something that the Turkish Government is not getting, or at least that the Turkish Government is not using. He said that he had also begun to wonder whether these projects were being implemented on a sound engineering and economic basis.

Mr. Dayton admitted to the Prime Minister that he was not an engineer and, therefore, did not feel qualified to make decisions involving complex technical and engineering questions. He had, therefore, asked his Washington office to employ the most competent engineering consultant available to survey the status of the two projects and to give an objective judgment regarding the manner in which the two projects were being carried forward including requirements for foreign engineering services and, to the extent possible, reassess the time schedules originally set up for these projects. He reported to the Prime Minister that a consultant had been employed and that he had completed his survey at the end of March. Also that a concurrent survey was conducted by the MSA Controller’s office to determine the actual use of foreign engineering firms employed to advise on or supervise the projects.

Mr. Dayton informed the Prime Minister that as a result of these surveys MSA/Washington had taken a decision to: (a) cease financing further technical or engineering services on either of the projects (with the exception of the Gordon Hamilton contract); (b) to provide no further financing of any other type for either of the projects; and (c) to request a refund of all direct dollar aid expenditures which have been made to date on the Sariyar project. He said that this action will involve a refund of about $5,000,000 and a cancellation of an equivalent amount of Procurement Authorizations which have been issued to the Eti Bank for the Sariyar project. He added that as the project now stands about $24,500,000 of dollar aid (including drawing rights and special resources) and $19,500,000 of Eti Bank financing has been used on this project. Also, that according to the latest estimates, it will require another $21,000,000 to complete it. This would bring the total cost of Sariyar to over $65,000,000 as compared with an original estimate of something around $45,000,000.

Mr. Dayton then told the Prime Minister that, though he had concurred in the Washington decision, he had asked that its implementation be withheld until after he and I had discussed the whole problem with the Prime Minister personally. He said that we were fully aware of the political implications involved on both sides and that the Prime Minister was entitled to an opportunity to take steps which would put the project on a sound basis. Mr. Dayton added, however, that since the technical services contracts expire on May 30, we had only until about May 15 to ascertain whether the Turkish Government and Eti Bank wish to put these projects on a basis which would justify continued MSA participation. He also told the Prime Minister that all of us were interested in seeing these projects finished as rapidly and as economically as possible.

He said he had expressed the view in Washington that the Turkish Prime Minister would want continued MSA participation and he would prefer avoiding a situation in which MSA was forced to withdraw its support. Mr. Dayton said that in his judgment the difficulty could be resolved if the Turkish Government is prepared to propose that both projects be (a) rescheduled, (b) recosted, and (c) that a single American engineering firm be given the responsibility and authority on each project to assure that they proceed according to plan.

After Mr. Dayton concluded his remarks I emphasized to the Prime Minister our regret at the decision taken by the Mutual Security Agency to cancel the outstanding technical assistance contracts connected with the Zonguldak and Sariyar projects and to request refund on dollar costs on the Sariyar project up to this point. I stated that the difficulties which gave rise to this action had been known for some time. Starting during the time when Mr. Dorr was Chief of the Mission and continuing through Mr. Dayton’s administration, we had made repeated efforts to resolve these difficulties, however without success. In addition to the adverse report made by Mr. Leerburger, Mr. Sayre and other members of his Mission had observed and commented upon the same problem.

I wished to assure the Prime Minister that both I and Mr. Dayton had every desire to help the Turkish Government overcome the possible effect of this decision. If the projects could be rescheduled and recosted and satisfactory supervision arranged for by a competent engineering firm before May 15th, we believed that the Mutual Security Agency in Washington might be able to reconsider its decision. If this could be accomplished there would be no need for any publicity or embarrassment to the Turkish Government.

I pointed out to the Prime Minister that I was particularly concerned in this matter since as a result of my recent conversations with him on this subject (see Embdesp 646, April 10)⁴ I knew of his keen interest in future hydro-electric developments in Turkey. If we were forced to withdraw our support of the Sariyar project, it might make more difficult our participation in future projects and that of the IBRD and other lending institutions. The fact was, however, that if the Turkish Government could not devise a more effective administration for carrying out such projects, they would not be economic. The important thing was to devise an administrative procedure which would assure that the projects were carried out with maximum efficiency and minimum cost.

The Prime Minister turned to Mr. Görk and they carried on a brief exchange of conversation in Turkish at the end of which Mr. Görk reported in English that the Prime Minister was prepared to make such a proposal and that he accepted the idea of rescheduling and recosting and giving responsibility and authority to a qualified firm of engineers.

The Prime Minister went on to say that the difficulties now being experienced at Zonguldak and Sariyar could very well prove to be good experience for the Turks in that these mistakes could be avoided in other important projects still to be developed or started.

Mr. Dayton suggested that in view of this decision on the part of the Turkish Government, he immediately get in touch with Mr. Gokçen of Eti Bank to work out the details. The Prime Minister agreed.

2. Turkish Petroleum Legislation

I advised the Prime Minister that the third major American oil company, the Sinclair Company, had indicated its interest in prospecting for oil in Turkey and would send a distinguished geologist in June. I asked the Prime Minister what progress had been made in drafting suitable legislation to implement the announced policy of the Turkish Government to invite foreign oil companies to participate in exploration of Turk petroleum resources. Had the Government ever completed negotiations with Mr. Max Ball, the petroleum consultant it had selected?

The Prime Minister replied that negotiations had been concluded with Mr. Ball, who would shortly come to Turkey for ten days. He commented that Mr. Ball had been very expensive. The Prime Minister said he questioned, however, whether new legislation was required. There existed, perhaps, adequate authority, at least for the present.

I replied that although this was a legal point on which the Prime Minister was better advised than I, it is my understanding that the existing Turkish laws would not provide a satisfactory base upon which the companies would be willing to invest the large sums, perhaps ten to fifty million dollars, which would be required. Although they are now willing to engage in surface geological reconnaissance, which is not costly, I did not believe they would proceed further without a firm legal basis. In my judgment, it was extremely important that this basis be provided as quickly as possible, preferably during the present Grand National Assembly, since otherwise the companies might lose interest or suspect that the Turkish Government did not in fact mean what it said in the statement of its new policy. This, however, was a matter on which Mr. Ball could advise the Turkish Government.

The Prime Minister replied that if new legislation were required there would be no difficulty in getting its passage through the Assembly. He assured me that this matter would be studied thoroughly.

1. Enclosure to despatch 718 from Ankara, May 8.
2. See the memorandum of conversation, supra .
3. Section 115 (k) of the Economic Cooperation Act of 1948, as amended, enacted by the Mutual Security Act of 1952, provided that $100 million in counterpart funds be put into a revolving fund for loans to European businessmen in order to encourage private enterprise.
4. Not printed. (398.14/4–1053)