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

450. Memorandum of a Conversation, Department of State, Washington, December 12, 1955¹

Washington, December 12, 1955

SUBJECT

• Aswan Dam Negotiations with UK

PRESENT

• The British Ambassador, Sir Roger Makins
• Viscount Harcourt, Economic Minister
• Secretary of the Treasury Humphrey
• Under Secretary of the Treasury Burgess
• U—Mr.Hoover
• E—Mr.Prochnow

I outlined to Ambassador Makins the United States Government’s willingness (subject to informal Congressional approval) to enter into an agreement to aid in building the Aswan Dam. It is anticipated that an arrangement could be worked out along the following lines:

1. The US and UK would together make a grant aid contribution of $70 million to cover the foreign exchange cost of the first phase of the construction, estimated to require about four years. The Egyptians would put up $65 million for local expenditures, toward which the US could contribute about $20 million in P.L. 480 wheat.

2. The World Bank would supervise the first phase of the program as the agent for the expenditure of the US–UK funds. During the first two years of the initial period, the Bank would proceed with plans and negotiations looking toward the financing of the second phase—the main dam and the electrical works.

3. The World Bank would give the Egyptians a letter of intent, stating its readiness to consider a loan of $200 to $250 million for the foreign exchange costs of the second phase, subject to the following points being worked out:

a. Agreement on division of the Nile waters with Sudan.

b. Agreement with Egypt on internal financing of the local costs and stabilization of the local economy.

c. Agreement for additional outside financing of foreign exchange costs (present estimate of Bank is $80 to $130 million, which must obviously be largely supplied by US and UK).

4. The US and UK would advise Egypt that they would give “sympathetic and urgent consideration” to a long-term loan to help in financing the foreign exchange costs of the second phase over and above the World Bank loan. Decision would be dependent upon the satisfactory working out of details between Egypt and the Bank in (3) above.

5. After thorough consideration, the US finds that if Public Funds are to be used on either a grant aid or a loan basis, a direct negotiated contract with the Consortium is not feasible, and competitive bidding is required. The procedures normally employed by the World Bank would be satisfactory. Contrary to the opinion of the Egyptians, some of whom are strongly in favor of a closed deal with the Consortium, the Bank does not believe that competitive bidding will delay the project.

6. In order to make funds immediately available for the first phase, the US contribution would have to come out of current FY 1956MSA appropriations. This will require application of at least $20 million out of the total of $30 million of funds programmed for Egyptian aid in the current year. The balance would have to come from contingency reserves, etc. It may even be necessary to draw on some of the funds scheduled for Egypt in FY 1957. The Egyptians would have to understand this clearly at the outset. Furthermore, contrary to the desires of the Egyptians, we cannot guarantee what the level of grant aid programs might be in future years. These funds are authorized by Congress on a year-to-year basis, and there is no assurance that Congress will not take the large amount of appropriations devoted to the Aswan Dam project into consideration in determining such future authorizations.

7. A confidential agreement between the US and the UK as to their respective shares should be reached immediately, both for the first and second phases—the latter to be determined on a percentage basis inasmuch as the total amount is not yet firm.

Ambassador Makins stated that, based on the original estimate of $40 million, the UK was ready to put up $10 million. Now that the foreign exchange cost of the first phase has been determined to be $70 million, he doubted that his Government was prepared to maintain the 25% ratio. Secretary Humphrey and I urged him strongly to do so, due to (a) difficulties we would certainly encounter in Congress, and (b) the added $20 million of wheat which we were contributing. He promised to obtain instructions on this point, as well as the percentage of participation by the UK in the second phase, by December 13.

We agreed to apply all possible speed in arriving at a decision in an attempt to give the Egyptians a firm proposal by December 16.

A working group was set up to prepare drafts of aide-mémoires, etc.

H

1. Source: Department of State, Conference Files: Lot 60 D 627,CF 640. Secret. Drafted by Hoover. A note attached to the source text reads: “Mr.H[oover] wants Sec to read before he sees Macmillan.”