Foreign Relations of the United States, 1955–1957, Arab-Israeli Dispute, January 1–July 26, 1956, Volume XV

1. Telegram From the Embassy in Egypt to the Department of State¹

Cairo, January 1, 1956—7 p.m.

1236. For Hoover. Had long talk with Nasser today as to general aspects our relations. This ranged over many matters in Middle East as whole, including Arab-Israeli situation. While I found talk in general encouraging, in view early departure will report here only item of immediate interest which has do with High Dam.

Department may find Nasser’s remarks on High Dam discouraging but consider this not totally the case. Everything Nasser said pointed up his determination make some type arrangements through Western Powers. As to specifics, Nasser made following important points:

1. Could not agree that principle of international bidding must be maintained as far as Egyptian funds concerned. Based his objection on political grounds as well as conviction that doing bulk of job through consortium (to which American addition welcome) was most expeditious and practical way of proceeding. Matter could be worked out so that all our funds, and probably great deal in addition, would actually be used under competitive bidding arrangements.

2. Conditions of World Bank, particularly those embodied in b and c of letter of intent were such that he could not accept them.² It did not matter so much to him that Western oriented or trained businessmen might see these as logical, or that even he might be convinced of their reasonableness. Documents would become published and they would simply say on their face to public opinion here that Egypt had surrendered its sovereignty and independence in economic and financial fields to World Bank. He talked at length as to why Egyptians are unusually sensitive, in view their history, to matters involving large foreign debt. Foreign debts handled in past during lifetime present population to foreign domination. He pointed to huge debt contracted by Ismail and foreign control which resulted therefrom.³ This control extended deep into Egypt’s sovereignty even including matters such as customs control.

However, Nasser said he quite realized bank must have safeguards upon its investment. He thought perhaps wording could be found which would protect bank’s interests without giving it veto power over practically all phases Egyptian economy. If this could not be done he faced with great dilemma as he felt himself in very bad position to either reject or accept present letter of intent. If he accepted letter as it stood he might gain $200 million but he greatly feared reaction would be such that in long run he would lose far more. He talked in this connection of his own parliament soon to be established and of situation where press was already endeavoring find out what conditions West has attached. (In this connection John Hightower story today will be most unhelpful.)⁴ He also mentioned Communist literature beginning to appear saying Western conditions are such Egypt will be completely dominated by West if bank’s conditions are accepted. On other hand he greatly feared complete misunderstanding with West if he rejected bank proposal. He had been particularly upset (this has been confirmed other sources) by hearing indirectly word attributable to Embassy that in such case there would be those in West who would conclude that GOE effort obtain assistance from West was only sham and for purpose of clarifying record. He did not feel he could afford such complete distortion of position of Egypt which had worked patiently with IBRD and Western consortium over long period in anticipation that job would be done by West.

Nasser said he could see only two ways out. One was change in bank letter of intent which would make it politically acceptable in Egypt. This was by far his preferred course as he would like see program for entire project worked out prior to proceeding. He feared however this might prove impossible in short run. If this case he concluded due his fear Western misunderstanding that it would be better to leave World Bank out of project initially with its eventual participation to be worked out as soon as possible and perhaps under better conditions all around. This would mean that Egypt, with such assistance as US and UK and perhaps consortium itself could provide, would undertake first phase of work. This he thought not too illogical as completion of first stage would in itself bring benefits to Egypt in form of some increase in irrigation. He realized however that at present time assistance of US, UK and bank were all interwoven. Could they be separated with hope that World Bank could enter picture in second phase? If conditions were such that bank participation could not be worked out, he would then most probably conclude that second phase should nevertheless be undertaken by Egypt with time limit for completion perhaps doubled or even tripled. This certainly not in interests of Egypt, yet he felt it probably preferable course to attempting accept World Bank conditions as they now stand.

Told Nasser I could give him no assurance whatsoever this plan might be acceptable in Washington. Stated it had been as much a part of our thinking as his that entire project should be mapped out prior to initiation. Our preference for assistance was loan from IBRD to be supplemented as feasible by government funds. I feared Washington might feel we were becoming indirectly committed to entire project with no real assurance that bank loan might eventually be made possible. He countered by saying that after all bank had planned to enter first stage in supervisory capacity only and without any responsibility for loans during that period. What was difference between his approach and that which would have been case if some months ago he had simply asked that we divert our economic assistance to High Dam, which Egyptians would initiate under Western contract?

Told him I also thought would be asked question in Washington⁵ as to whether under this method of procedure we might be contributing to project in which portion of work and materials would be allocated to Eastern bloc. He replied that he would give us categoric assurance on this point if we could agree to separation of project into phases and principle of negotiated contract with consortium arrangement. In this manner he could assure us that all work and materials would be allotted to West. He called Helmy on the phone in my presence and got confirmation that this would be plan. I asked what would happen if Soviet bloc were to offer transmission cable, pumping stations, etc., at much below Western prices. He replied that he certain we could be adequately assured on this point and that all this could be arranged through consortium. Stated his plan more foolproof than ours in this regard. Under the concept of international competition he already had a problem as one of the Eastern countries was trying to compete on preliminary contract now under consideration for roads and housing. If matter could be done through consortium he would have answer to this question. If it a question of international competition how was he to handle this sort of thing?

While I held out no hope to Nasser of such major shift in arrangements believe on first analysis Nasser’s suggestion holds certain advantages as well as disadvantages. Hope Department will give this every consideration in order assure ourselves we have made best effort possible meet local conditions. Will withhold further comment until arrival.

For London Embassy: Trevelyan asked if you could show copy this message to him as he has shown me his of talk with Nasser same subject.

Byroade

1. Source: Department of State, Central Files, 611.74/1–156. Secret; Priority. Received at 6:37 p.m., January 2. Repeated to London.
2. Black handed Kaissouni the IBRD’s draft letter of intent on December 17. In paragraphs b and c of the letter, the IBRD specifically asked the Egyptian Government to pledge that:
   • “(b) the Government’s own contribution to the project will be provided in such a way as to avoid inflation and impairment of Egypt’s creditworthiness. To this end, the Government and the Bank will reach an understanding on, and will periodically review, an investment program which will recognize the priority of the High Dam project and the need for adjusting total public expenditures to the financial resources which can be mobilized;
   • “(c) the Government will not incur obligations in respect of foreign debt, including suppliers’ credits, in excess of amounts mutually agreed by Egypt and the Bank from time to time to be prudent in the light of Egypt’s circumstances, and will consult with the Bank before undertaking any such obligations”. (Ibid., 874.2614/ 12–1655)
3. Reference is to Ismail, who became the Ottoman Empire’s governor of Egypt in 1863.
4. For text, see The Washington Evening Star, January 2, 1956, p. 1.
5. The Department informed Byroade on December 27 that the Alpha project was undergoing intensive reexamination and instructed him “to come to Washington on consultation arriving here January 3 or 4.” (Telegram 1345 to Cairo; Department of State, Central Files, 780.00/12–2755) Byroade returned to Cairo on February 11. (Telegram 1836 to Cairo, February 8; ibid., 123–Byroade, Henry A.)