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

423. Memorandum of a Conversation, Department of State, Washington, November 22, 1955¹

Washington, November 22, 1955

SUBJECT

• Financing of the High Aswan Dam and Related Problems

PARTICIPANTS

• Mr. Kaissouni, Egyptian Minister of Finance
• Mr. Hussein, Egyptian Ambassador
• U—Mr.Hoover
• E—Mr.Prochnow
• NEA—Mr.Allen
• NE—Mr.Gay

Mr.Hoover in describing our great interest in the High Aswan Dam project illustrated its tremendous magnitude by pointing out that relative to the size of the respective economies it is larger than the total of all US public works of this type produced since 1900. This underlined the importance of ample technical preparation and solid financing. The World Bank he thought is the logical institution for a project of this magnitude and best equipped to handle the job efficiently and economically. He said we would keep in touch with the Bank and encourage it all we could. Mr. Kaissouni responded by saying that the magnitude of the economic problems facing Egypt require bold action; “if Egypt could build the Pyramids alone it could with outside help handle the High Dam.” He referred to his conversation with Mr.Black of the World Bank² mentioning that the principal questions raised by Mr.Black had to do with the source of financing external costs and the division of the Nile waters. The nature of these problems he thought underlined the importance of US help.

Referring to the division of Nile waters, Mr.Hoover said we would do all we could to help toward a settlement but the temporary absence of a government in the Sudan made progress difficult.³ He was hopeful this would soon be resolved but we needed more facts to be of real assistance. He thought the British were in a better position to help. Considerable discussion followed concerning the details of this problem and the 50–50 offer which the Egyptians recently made to the Sudanese. He felt the 50–50 offer was generous; it would provide the Sudanese more water than they could use for many years. The discussion on this point clarified the meaning of Egypt’s proposal. All the Egyptians want is a Sudanese guarantee not to use up within the Sudan more than half the water presently “wasted” into the sea.

In response to the opinion that a settlement with the Sudanese of this matter was prerequisite to a Bank decision, Mr. Kaissouni expressed hope that enough “prospect of settlement” could be reached to persuade the Bank to move on the first stages of the project. He felt that the Sudanese position was now an internal political affair. It was pointed out that if the Dam project were started prior to reasonably firm settlement the Sudanese might later demand an even higher price for an agreement. In response to question Mr. Kaissouni felt the present Sudanese Government could ratify an agreement and that, in the absence of agreement, a mutually accepted decision to arbitrate the matter should enable Egypt to go ahead with the Dam. Ambassador Hussein pointed out that under the terms of a 1929 agreement⁴ the present Sudanese Government was bound to accept arbitration of such matters as this.

Mr. Kaissouni, reporting on his conversation with Mr.Black, said the latter thought the Bank might be able to put up about $200 million of his estimated $600 million required for external costs of the project. It was the large difference between these two figures which required outside assistance from other sources over a period of approximately a decade. In response to Mr.Hoover’s query regarding the possibility of short term credits as a possible offset to long term loans, Mr. Kaissouni referred to the British, French and German Consortium’s offer of medium term export credits approximating 5 million pounds each. Mr.Butler told him in London⁵ this figure could be enlarged. Mr.Black, however, took the position that short term financing was incompatible with long term financing by the Bank. If Egypt could handle a $400 million loan of any type, the Bank itself would be able to provide credit; this type of financing would only reduce Egypt’s credit worthiness in the Bank’s eyes. Mr.Hoover added in this connection that long term financing by facilitating cash payments to contractors was in his experience the most efficient procedure, offering possibilities of savings and fuller competitive bidding.

In regard to competitive bidding Mr.Hoover stressed that all the US desired was that American firms be given an opportunity to bid equal to that offered any other firms. Mr. Kaissouni seemed to imply that competitive bidding was synonymous with splitting up or proliferation of contracts. He felt that dealing with one group offered greater efficiency; it would permit going ahead before details of the whole project were ready. Mr.Hoover replied that the employment of able consulting engineers to handle the planning and coordinating of the total project should meet this difficulty; he thought that the Bank’s method of operation would permit going ahead on parts of the project before the completion of all detailed plans or bidding on all phases.

In response to the question whether or not Egypt itself could finance and otherwise go ahead with the coffer dam and tunnels, Mr. Kaissouni replied in the affirmative but stressed that Egypt wanted assurance that the whole project could be carried forward before launching this first phase. He expressed great hope that he could reach an understanding with the Bank before he returned to Cairo. He got the impression, however, that the Bank wants a US commitment as a prerequisite to its own decision.

Following Mr.Hoover’s observation that more information re basic figures is needed before commitments are possible, Mr. Kaissouni alleged that Egypt would be able from its own resources to handle the additional requirements over and above what the Bank, the US and the UK might provide. No specific amounts, however, were mentioned in this connection. In the course of discussing the dangers of inflation Mr. Kaissouni recognized the importance of how Egypt raised its own funds. He thought there was considerable scope for public borrowing and for tapping potential investment funds of insurance companies and other local institutions without significant inflationary impact. He alleged there were large amounts of funds available in Egypt for investment in government bonds.

Mr.Hoover alluded to the possibility that American agriculture will fear expanded output of cotton in Egypt as a result of the increase in cultivable land. He hoped that we could meet this problem or that natural developments will have erased it by the time the Dam is built. We have been under great pressures from the cotton growers to subsidize export of our surplus cotton. He was hopeful we could continue to resist these pressures. Mr. Kaissouni observed that Egypt was cutting back cotton production next year and that he had talked to Ambassador Byroade about a possible international agreement to control cotton planting. He said if the US imposed an export subsidy Egypt would have to respond by reducing its cotton prices at great loss to itself. Egypt’s cotton exports were off about 10 million pounds this year due largely to the uncertainty of the cotton market. Egypt was much concerned that this instability be eliminated.

In concluding the conversation Mr. Kaissouni did not appear to be highly encouraged from his conversation with Mr.Black; apparently the contrary was the case in respect to his earlier conversations with Mr.Butler in London. He again stressed his hope that the project should go ahead without waiting for final agreement with the Sudan; otherwise, since the Sudanese were not in a hurry, there might be long delay. In this connection Mr.Hoover thought the British could give positive assistance. He expressed his conviction that Mr.Black personally was very hopeful regarding the High Aswan Dam project. As an international servant, however, and as a banker he should quite properly be meticulous and cautious in an enterprise of this magnitude. He hoped Mr. Kaissouni would keep in touch with Mr.Prochnow and Mr.Allen and that following his talks with the Bank there might be ways in which we could be helpful. We would follow the matter closely with the Bank.⁶

1. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Confidential. Drafted by Gay on November 23.
2. No record of this conversation, which apparently took place on November 21, has been found in Department of State files.
3. See footnote 2, Document 405.
4. On May 7, 1929, representatives of the Governments of Egypt and the United Kingdom signed a treaty that provided for the regulation of the supply of Nile water to Egypt and, at the same time, safeguarded the interests of the population of the Sudan. For text, seeBritish and Foreign State Papers, 1929, Part 1, volume 130, pp. 104–106.
5. For Aldrich’s summary of Kaissouni’s conversation with Butler, as related to Aldrich by Eden, see Document 399.
6. The Department on November 23 transmitted a summary of this conversation to the Embassy in Cairo. (Telegram 1067 to Cairo; Department of State, Central Files, 874.2614/11–2355)