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

410. Memorandum of a Conversation, Department of State, Washington, June 25, 1956¹

Washington, June 25, 1956

SUBJECT

• Aswan Dam; Iran; Saudi Arabia

PARTICIPANTS

• Mr. Eugene R. Black, President, IBRD
• Mr. Andrew N. Overby, Assistant Secretary, Treasury Department
• The Secretary (for part of meeting only)
• The Under Secretary
• NEA—Mr. Rountree
• NE—Mr. Burdett

Mr. Black, who had just returned from a trip to Egypt, Iran and Saudi Arabia, called to provide the Department with his impressions. He first described his one day’s visit to Egypt during the Independence Day celebrations. The Egyptians were embarrassed that Shepilov accepted, as Soviet Foreign Minister, an invitation extended to him as the Editor of Pravda. Mr. Black had written to Finance Minister Kaissouni of his plan to stop in Egypt on his return from Iran and Saudi Arabia for one day without knowing of the Shepilov visit. He described both Kaissouni and Nasser as extremely friendly and courteous to him, despite the demands upon their time imposed by the events then in progress. Both appeared surprised, a little hurt, and disappointed that there had been no reply to their counter proposals on the Aswan Dam, but there was no trace of bitterness. Nasser explained that he thought agricultural development was the key to Egypt’s future and not industrialization as advocated by some of his advisers. Therefore, he was most anxious to move ahead with the Aswan Dam. Nasser said agreement in principle with the Sudan on division of Nile waters had already been reached. He admitted that the matter of compensation for the flooding of Sudanese lands posed a greater problem, but he thought that it could be solved. Nasser made no mention of Shepilov and did not hint that he was considering a Soviet offer on the Dam. Kaissouni expressed disappointment that Egypt would receive no assistance from FY 56 appropriations and that this would mean a year’s delay in starting the Dam. In private conversation with Mr. Black before the meeting with Nasser, Kaissouni hinted that Nasser might speak of a Soviet offer and that he, Kaissouni, was fearful of seeing the pattern of the arms negotiations repeat itself. He most earnestly urged Mr. Black to prevent Egypt from having to reach an agreement with the Soviet Union.

[Here follows discussion of Black’s visit to Saudi Arabia and Iran.]

The Secretary joined the meeting at this point.

[Here follows a continuation of Black’s remarks regarding his visits to Egypt, Iran, and Saudi Arabia.]

The Aswan Dam was then discussed in considerable detail. Mr. Black expressed the opinion that the situation now was not much different from that prevailing in December 1955. He thought that the Egyptian economic situation had not deteriorated. Egypt had just succeeded in floating a $25 million internal bond issue. In reply to a question from the Secretary regarding the effects of our discontinuance of PL 480 shipments and cutting back on CARE, Mr. Black said the Egyptian officials were quite concerned and disappointed. The Secretary inquired whether the Aswan Dam project was not too big for the Near East, whether it would not necessitate too great a degree of austerity in Egypt. Mr. Black replied that it would involve a certain degree of austerity; Egypt would have to give up other

things, but no other project would have the same impact…..

However, he thought that if the West did not proceed with the project, the Soviets would make a deal during Nasser’s Moscow visit in August, and that this would have a tremendous impact. Whether or not the Soviets would succeed in building the Dam was another question, at least they would try to do so. The project is popular in Egypt and Nasser has committed himself politically. The Soviets are putting forth fancy offers. There is some talk of no interest and repayment over a very long period by shipments of cotton. The West cannot match these terms. However, Nasser gave every indication of preferring to make an agreement with the West; perhaps because he feels the hot breath of the Russians uncomfortably close to the back of his neck.

The Secretary described the knotty difficulties with Congress over the project. It had contributed to the alienation of southern Senators. If the project were pushed today, a rider would be introduced prohibiting the use of funds for the Dam.² Such a rider might be tacked on any way. Mr. Black inquired whether it would not be advisable to explain the situation to Nasser. He thought that any statement should be made before a possible agreement with the Soviets, since it would be much weaker if made afterwards. He inquired what the reaction in Congress would be if there were an Egyptian–Soviet deal. The Secretary explained that if we discussed Congressional opposition with Nasser now, we would be implying a willingness to proceed with the Dam after the bill was passed. He thought that regardless of what members of Congress might say, that they would be relieved to see a Soviet–Egyptian agreement. There is a belief in Congress that the Soviets would make a mess of the project; that it would be wise to call the bluff of certain countries threatening to turn to the Soviet bloc. The Secretary added that the Dam had already cost us much, not only in Congress, but in the form of political support from friendly countries. He thought that it would be difficult to complete the project without also antagonizing the Egyptian people who were bound to be pinched by the required austerity measures. He was not sure that the USSR could undertake the project and earn lasting credit thereby. He did not wish to imply that he was definitely opposed to proceeding with the offer, but he saw a good many hazards. Mr. Black referred to the political risks involved in accepting an Egyptian–Soviet agreement. The Secretary agreed Egypt was a bad spot in which to let the USSR obtain a foothold.

Mr. Black remarked that the press had asked him whether the IBRD would participate if an agreement were made with the USSR. He had replied that the matter had not come up and had refused to discuss such a hypothetical question.

Mr. Black mentioned that the Suez Canal Co. was proposing to have Electric Bond & Share conduct a study of future Canal traffic and then recommend how the problem might be met. Kaissouni had been disturbed that the Company had not discussed the project beforehand with Egypt. Mr. Hoover said that the oil companies were also considering the construction of super tankers, which in the long run might not involve much more expense, and the possibility of a pipeline through Turkey.

The Secretary left the meeting at this point.

Mr. Hoover stated that in any event the best we could do would be to return to the December offer.³ Mr. Rountree said that it would, in fact, be necessary to ask for additional conditions. We no longer had available grant aid funds; it would be necessary to include provisions specifically banning Soviet participation; it would be necessary to provide for agreement by all the riparian states on the use of Nile waters. Mr. Black said that he would agree to these conditions.

A discussion ensued regarding the probable availability of funds from FY 57 appropriations. It was pointed out that the overwhelming sentiment in Congress was in favor of loans. Under the best possible bill which could now be anticipated, only 25 per cent of the total funds would be available for grants. To give all of this to Egypt would wreck other vital programs. It was suggested that an IBRD loan could be supplemented by long–term ICA loans and the shipment of agricultural commodities under PL 480, with repayment in local currency over a long period. PL 480 commodities would serve to generate needed local currency.

1. Source: Department of State, Central Files, 398.14/6–2556. Drafted on June 26 by Burdett.
2. The legislation under reference became the Mutual Security Appropriation Act of 1957 when President Eisenhower signed it into law on July 31, 1956. (Public Law 853; 70 Stat. 733)
3. See telegram 1282, vol. XIV, p. 868.