Foreign Relations of the United States, 1955–1957, Arab-Israeli Dispute, 1955, Volume XIV

355. Telegram From the Department of State to the Delegation at the Foreign Ministers Meetings in Paris¹

Washington,October 25, 1955—7:35 p.m.

Tosec 29. London tels 1602, 1603,² 1632,³Dulte 5.⁴

1. We share British concern threat posed by Soviet offer to construct High Aswan Dam and recognize desirability proposing some course action looking toward Western financing of project. Believe threat can be successfully met unless Egyptians impervious all tenets sound planning and implementing of project this type and Soviets completely disregard all commercial considerations. In such event doubt we in any position to compete. We cognizant danger of involving US in such long range project since inability carry through would damage our prestige and invite exploitation of situation by Soviets.

2. Bank’s engineers have just arrived Cairo at GOE request.Black is hopeful they will make significant progress in explaining proper role of consulting engineers for this project and in getting GOE understanding and acceptance. Engagement internationally recognized firm on terms acceptable to Bank could then follow. (British Foreign Office under impression Sir Alexander Gibb and partners already appointed.)Black believes forthcoming talks with Kaissouni will also enable progress be made on other aspects of loan.

3. According IBRD, preliminary study over-all cost of dam complex estimated £469.7 million ($1.3 billion) of which foreign exchange expenditures represent £142 million ($408 million); remainder of financing considered local currency costs. Whereas dam and power facilities may be constructed over period 10 years, irrigation and other land spreading phases will not be completed for 18 years. Since financing of project even with substantial outside help bound place great strain on Egypt’s resources, careful budgeting of resources, over-all planning and establishment of priorities for both armament and development expenditures will be necessary. If this is done, Bank study indicates Egypt should be able finance about one-half foreign exchange component £71 million ($204 million) from own resources; this predicated among other things on continued foreign aid amounting at least £3.5 million ($10 million) annually and access to blocked sterling assets at faster rate than at present. We are doubtful that Egypt will in fact be able to make such large allocation of her own foreign exchange, and that over and above loan of at least $200 million approximately $200 million of foreign grant aid may be required during construction period to enable Egypt to successfully finance other essential requirements.

4. Re British proposal, para 2, London’s 1603, Dept observations as follows:

a) Figure given for total cost of project (around $720 million compared to Bank’s total estimated cost of $1.3 billion) appears cover only the dam, power installation and some water spreading phases but not entire project envisaged as essential by Bank in order to produce the necessary results in the Egyptian economy.

b) Since, according to Bank estimates, foreign exchange costs probably in excess £140 million, maximum figure in range suggested by British (£100–140 million) will be used in following analysis.

c) British group appears willing carry £15 million for only 4 years beyond completion of work. However, much longer credit period is necessary due Egypt’s precarious balance of payments situation.Black talked with consortium members last month and believes consortium unable extend long term credits.IBRD loan would presumably extend over 20–25 year period. Implication though not stated is that US would carry after the 4 year period in the consortium proposal.

d) Actually therefore assurance requested in para 12reftel 1603 if accorded would obligate US assume ill defined and potentially large risks. Under most favorable conditions our obligation might not be greater than maximum credit element £15 million mentioned para 2. This, however, leaves £31 million unaccounted for which according para 8 might conceivably (and probably would) come under default. Furthermore, if US assumes this obligation for Britain, we might well be asked to assume comparable French and German obligations aggregating around £94 million. In addition to project risks British wish us support Egyptian economy to at least £50 million (see para 7), which they regard as minimal since Egyptian expenditures on arms and ability to cut back outlays other development projects uncertain. As practical matter, identifiable liabilities which US might have to assume total £190 million ($545 million). Commitment might conceivably involve US in financial obligations far beyond this figure, particularly were Egypt to engage in military undertakings during this period.

e) Aside from other considerations, we strongly doubt Congressional sentiment would support consortium approach unless American firms given opportunity to participate.IBRD procedure of normal competitive bidding seems to us desirable.

5. Department understands (from Black) that IBRD would not be able participate under terms presently proposed by consortium. Bank requires contracting for construction through international competition and objects to consulting engineers participation such competition. Bank further requires 1) agreement between Egypt and Sudan on division of Nile waters and 2) assurances covering necessary financing over and above its own loans e.g. how will GOE procure and assure adequate local resources.

6. US Government believes international character IBRD and its experience gives best assurance to both GOE and to the West of successful project and that relations with respect to project will be kept amicable. Moreover, Bank virtually only source from which GOE can obtain adequate long term credits. No ordinary Bank or group of Banks would appear able underwrite project.IBRD policy on tenders would conceivably reduce cost of project.GOE concern with Bank policy in this regard appears unfounded since Bank officials believe Eastern European countries would not be able to qualify.

7. Would seem to us what Egypt needs and wants is our assistance in removing obstacles which interfere with IBRD financing.UK could make most significant contribution by obtaining Sudan’s consent soonest to Egypt’s use at least additional 10mcm of Nile water. US and UK could also contribute by assuring GOE their intention grant foreign exchange assistance necessary fill gap between total foreign exchange requirements and amount forthcoming from Bank. This would be over and above release UK blocked sterling held by Egypt.

8. Proposed course of action:

a) UK and US would assure GOE that they will exercise best efforts to bring GOE–IBRD negotiations to prompt and successful conclusion.

b) UK would immediately exert maximum influence with Sudan to reach an agreement with Egypt which will satisfactorily meet that country’s water requirements.

c) US and UK would, if developing situation requires, express intention, provided GOE shows constructive attitude towards ME problems, to extend subject to continuing appropriations substantial grant economic aid over the next ten years. We would expect UK to assume about one-third this obligation over and above release Egyptian blocked sterling.

Hoover

1. Source: Department of State, Central Files, 645W.74322/10–2255. Secret; Priority. Drafted by Gay and Shaw; approved and signed by Hoover. Repeated to London and Cairo.
2. Documents 347 and 348.
3. Dated October 22; it transmitted background information supplied by the Foreign Office in support of the proposal outlined in Documents 347 and 348, including a summary of a memorandum which the Foreign Office had given the Embassy. (Department of State, Central Files, 645W.74322/10–2255)
4. Dated October 24; it requested a report on an October 21 meeting between Hoover and Humphrey and Black. (Ibid., 874.2614/10–2455)Hoover responded in Tedul 7 to Paris, October 24, that the October 21 meeting was preliminary and that he would report the next day on another meeting that afternoon. (Ibid.) For the October 24 meeting, seesupra.