268. Memorandum From the Deputy Under Secretary of State (Murphy) to the Secretary of State1


  • Saudi Arabian Discussions


In the economic discussion yesterday the Saudis told us that they had made a decision to join the IBRD. It was evident that they felt this would be pleasing to us and indicated that they had crossed a bridge and were willing to borrow money for some big development projects. Decision as to whether all hurdles, such as IMF membership, were overcome was not clear. They were then very insistent on a determination as to whether we would give them grant assistance in principle and if so how much? They gave the impression of badly wanting and feeling entitled to such assistance. I also had the impression that the answer to this question was directly related to the Dhahran negotiations and military assistance i.e., that the King feels it imperative that he leave with something to demonstrate to the area the fruits of cooperation with the U.S. on the President’s policy.

While we did not absolutely exclude grant assistance, we followed the line of stressing loans and offering technical assistance. I fear they did not accept our position on grant assistance as final and our offer of technical assistance did not elicit interest. The following seem to be the alternatives:

Present Package

$50,000,000 (over 5 years) Air Force and Army training program including grant of 8 T–33 and 10 propeller aircraft (total $2,050,266).
Engineering surveys and loan assistance for economic projects.
Agreement to sell $110,000,000 in arms.2
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Further Possible Proposals in Addition to Above

Up to 3 year credit for sale of arms.3
Anti-aircraft defense of Dhahran on a grant basis (Suggested $5,000,000.).
Additional grant military aid (Possibly up to $15,000,000.).4
Offer to grant up to $20,000,000 for economic projects such as Damman port.5
Offer to assist with the burden of the loss of oil revenues (up to $20,000,000) as a grant.6

This would be consistent with your presentation to the joint committees but might create difficulties with other Near Eastern states which have lost a greater percentage of revenue.

Any economic assistance to Saudi Arabia is bound to cause difficulties with the Congress. Once a determination on these alternatives has been made, you may wish to consult informally with Congressional leaders.


That you authorize us immediately to discuss alternative (a) under Further Possible Proposals and to progress to other alternatives as discussion may require.7

  1. Source: Department of State, Conference Files: Lot 62 D 181, CF 833. Secret. Drafted by Lathram, Newsom, and Barnes and sent through S/S.
  2. The additions and revisions referred to in the subsequent footnotes to this document were made by Secretary Dulles, according to another copy of this memorandum. (Ibid., NEA Files: Lot 60 D 473, Saudi Arabia World Bank & IBRD) A notation in an unidentified hand under point (c) reads as follows: “(Reference should be made to the area in which arms are to be used. The UN Res. on Suez prohibits the shipment of arms to the area of hostilities.)”
  3. A notation in the margin reads as follows: “(up to $ figure to be supplied by Def)”.
  4. Point (c) was crossed out.
  5. The words “or a portion of the Hejaz railway” were deleted.
  6. Point (e) was deleted.
  7. A notation on the source text in an unidentified hand reads as follows: “Sec. orally approved to Mr. Murphy ‘Present Package’ plus courses of action as in ‘further’ a, b, & d above, as shown, & as a package.”