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

433. Memorandum by the Under Secretary of State (Hoover)¹

Washington , December 2, 1955 .

U.S. POLICY ON FINANCING HIGH ASWAN DAM IN EGYPT

The Egyptian Finance Minister, Kaissouni, has been discussing the financing of the High Aswan Dam with the IBRD and representatives of the United States and United Kingdom Governments. The Egyptian Government attaches great importance to this project. The dam would provide Egypt a one-third increase in cultivable area, more food, and a higher national income; it would control Nile floods and provide power for future industrialization. It has been the subject of a political commitment by the present government to the Egyptian people. The total cost of the dam and other investment projects is estimated at $1.8 billion of which the cost attributable to the dam is $1.1 billion. Ten years would be required to complete the project. The Egyptian Government is determined to advance this project and would probably accept a Soviet offer of assistance if help cannot be obtained from the West. Western financing of the project is therefore necessary if the threat of Soviet penetration is to be avoided.

The IBRD has already informed Dr. Kaissouni that it would lend Egypt $200 million of the foreign exchange component estimated at $500 million provided Egypt could raise sufficient local currency, agree on division of the Nile waters with the Sudan, establish appropriate administrative procedures, and contract no other foreign debts.

It is recommended that the following course of action be undertaken:

1. Before going ahead with the project, the United States should obtain an agreement with the United Kingdom providing that:

(a) Of the total financing by the U.K. and the U.S., the U.K. share should be not less than 20 per cent;

(b) The U.K. is prepared to join with the U.S., the IBRD, and the Egyptian Government in support of the arrangement set forth in this statement.

2. The U.S. and the U.K. would present separate but coordinated letters of intent to the Egyptians stating that the U.S. and the U.K. are prepared to aid in the financing of the High Aswan Dam, as follows:

(a) By making a joint grant contribution towards the foreign exchange cost—estimated at $30.8 to $42 million—of the initial phase of the project comprising construction of the several cofferdams and diversion tunnels over the period 1956–1961.

(b) By making a grant aid contribution of $200 million spread over the 10-year period of the construction of the project. (On the part of the U.S. the Administration will actively seek Congressional approval of the funds required by the project.)

3. The U.S. and the U.K. should exert every effort to see that an agreement is reached between Egypt and the Sudan for a fair division of the Nile waters in a manner agreeable to the contracting parties.

4. The U.S. and the U.K. will inform the Egyptians that we do not believe that their proposal to negotiate an over-all contract with a consortium would be desirable. It is our view that a procedure involving competitive bidding of the type normally required by the International Bank would insure the most expeditious and economic execution of the project.

5. The IBRD would give the Egyptian Government a letter of intent stating its willingness to proceed with the financing of the project subject to certain conditions which would be specified, including an agreement on the Nile waters. The IBRD as a mark of its intent to move ahead with the financing would propose to Egypt the formation of a working group consisting of representatives of the Bank and Egypt to study financing and technical questions in connection with the construction of the dam.

6. In view of the magnitude of the undertaking and the great strains it will inevitably impose on the resources of Egypt, the Bank will make clear to the Egyptians that in order to mobilize the funds required and to maintain economic stability it will be essential to follow sound fiscal and monetary policies and establish firm priorities for development expenditures. The Government of Egypt would be expected to agree not to assume any other foreign debts which would impair its ability to discharge its obligation to the IBRD.

7. In return for the IBRD loan, and the U.S. and the U.K. assistance in meeting a substantial part of the foreign exchange requirements of the project, Egypt would be informed that she must finance the remaining costs of the dam out of Egyptian resources.

8. The U.S. would inform Egypt that wherever possible the U.S. will continue to aid Egypt to improve its economy through a continuation of the mutual assistance program.²

Herbert Hoover, Jr.

1. Source: Department of State, Central Files, 874.2614/12–255. Secret. The following handwritten notation by Dulles appears on the source text: “I concur JFD 2 Dec 1955”.
2. The Department of State on December 2 transmitted a summary of this policy paper to the Embassies in Cairo and London. (Telegram 1139 to Cairo and telegram 3087 to London;ibid., 874.2614/11–3055)