664. Memorandum From the Under Secretary of State (Hoover) to the Secretary of State1


  • Financing of UN Clearance of Suez Canal

As you know, Secretary Humphrey has been working closely with Mr. John McCloy, financial adviser to Secretary General Hammarskjold, on the problem of financing the clearance of the Suez Canal by the United Nations. Progress has now reached the point where rapid action can and should be taken.


A minimum of from $3 to $5 million will be needed by the UN on January 2, 1957, for preliminary payments to contractors engaged in clearance operations in Egypt. It is estimated that an additional $15 million will be required during the first quarter of 1957 to complete the initial phase of the work and to provide a clear channel through the canal to a depth of 25 feet.

A tentative estimate has been made by General Wheeler that $20 million more will be required for the second phase to restore the canal to its original usefulness, and to repair or replace shore installations which were damaged during the recent action. It is expected that the latter expenditures will be made during the second and third quarters of 1957. A total of about $40 million will therefore be required for the entire project.

The methods adopted for financing the initial $5 million will undoubtedly set the pattern for raising the additional funds that will be required as the work progresses. It is essential, therefore, that the financing be placed on a sound basis from the start. Inasmuch as other nations will expect the United States to provide an appreciable part of the funds, we have an excellent opportunity to guide future policy.

1. Source of Funds

While it is probable that the United States will have to put up a substantial proportion of the funds, it seems desirable that a maximum number of other nations participate with us in the operation.

[Page 1330]

Some consideration has been given to raising the funds through SCUA, having in mind that subscriptions should be proportionate to the use of the canal. Two practical objections are obvious, namely (a) the difficulty of determining fair quotas, inasmuch as the volume of tonnage does not necessarily indicate the relative beneficial use of the waterway, and (b) the lack of time for consultation before the first installment is required.

The simplest procedure would seem to be for (a) the SYG to call for voluntary contributions, and (b) the United States immediately to offer $4 million on condition that other nations, in the aggregate, will match our participation.

2. Nature of U.S. Contribution

The U.S. contribution could be either in the form of (a) an advance, or (b) in grant aid. While an outright gift might be regarded as a generous gesture on the part of the United States, and might minimize later arguments about repayment and responsibility for damage, nevertheless there appear to be overriding reasons in favor of an advance. These reasons are that (a) the canal is an economically sound enterprise and is able to generate ample funds, over a period of time, to provide for repayment, (b) wider international participation would be attained, (c) the United States and other users would be able to exert a maximum degree of leadership in subsequent negotiations, and (d) public and congressional support will be enhanced by placing the transaction on a repayment basis.

3. Method of Handling Funds

Assuming that the U.S. contribution would be in the form of an advance, ICA participation through Sec. 4012 would appear to offer the most rapid and straightforward means of making the funds available. ICA should therefore assume responsibility for the financial details of the transaction, under policy guidance from the Department of State, insofar as the U.S. participation is concerned.

It appears desirable that the International Bank (IBRD) act as the over-all fiscal agent for the Secretary General. Such an arrangement would have the following advantages: (a) confidence in the fiscal aspects of the operation will be increased; (b) the international character of the project will be enhanced; (c) negotiations for repayment of advances will be more effective if the IBRD represents all parties to the transaction than if each endeavored to negotiate independently; and (d) the IBRD will be the vehicle, in all probability, [Page 1331] for financing the compensation to the shareholders of the old canal company and for future major improvements to the waterway, and would therefore be the logical avenue through which to effect repayment of the advances.

4. Assurances from Egypt, United Kingdom and France

It would seem advisable that Egypt, U.K. and France should give assurances along the following lines prior to agreement for financing the rehabilitation of the canal:

Full cooperation with the Secretary General in the work of clearance.
Pursue rapidly the negotiation of an over-all agreement on the Suez Canal problem under U.N. auspices.
Pending final agreement, the interim operation of the canal will be in accordance with the six points set forth by the Security Council.
The final agreement will include provisions for repayment of advances for clearance.

We understand that the Secretary General prefers to obtain such assurances on his own initiative and that they will be included in his formal appeal to the United States for funds.

5. Additional Funds

While additional funds from the United States will undoubtedly be required, it does not appear desirable to make any advance commitments at this time. We should await the response of other nations to the appeal for funds, and should be in a position to exert maximum pressure for an equitable final settlement.

6. Procedure

It is our understanding, through Mr. McCloy, that the Secretary General will address a letter to the United States and other governments requesting contributions to cover the costs of clearance, and that this letter will cover the points outlined above. He would hope that the United States will not be in the position of stipulating conditions in making its contribution, in order to avoid haggling on the part of other contributors.

We expect to receive, informally and confidentially, a rough draft of the letter within the next few days. Upon arrival it will be urgently considered by all interested agencies. A tentative reply is now being prepared in the Legal Adviser’s Office.

[Page 1332]


It is recommended that the United States proceed immediately to make up to $5 million available to the Secretary General, on the understanding that the following conditions are complied with:

That a maximum number of other nations will participate on a matching basis.
That contributions will be on an advance or loan basis, and not by means of grant aid.
That ICA handle the financial details and provide the funds through Sec. 401, and that the Secretary General designate the IBRD as the fiscal agent for handling funds.
That the Secretary General will use his best efforts to obtain satisfactory assurances from Egypt, the United Kingdom and France of their intentions to (a) cooperate in clearance operations, (b) pursue negotiations rapidly for an over-all agreement, (c) operate the canal on an interim basis in accordance with the Security Council’s six points, and (d) include provisions in the over-all agreement for repayment of the advances.
That the United States make no firm commitment for further contributions pending (a) response of other nations to the Secretary General’s appeal for funds and (b) developments in the over-all Suez settlement.4

  1. Source: Department of State, Central Files, 974.7301/12–2456. Secret. Drafted by Hoover; cleared by Murphy, Henderson (in draft), Rountree, Elbrick, Wilcox, Phleger (in draft), Hollister (in draft), and Overby.
  2. Reference is to Section 401 of the Mutual Security Act of 1954. (68 Stat. 832) Section 401 authorized the creation of a Special Fund to be used when the President determined that such use was important to the security of the United States.
  3. A marginal notation on the source text by Greene, dated December 24 reads: “$5 million is firm figure—ICA being informed by S/S (per H. H., Jr.).” On December 26, Murphy informed Dulles that McCloy had received assurances from the heads of the Italian, Scandinavian, German, Netherlands, Australian, and Canadian Delegations at the United Nations that together their governments would more than match the amount of U.S. advance to begin work on clearing the Suez Canal. McCloy also reported that Hammarskjöld was sending out formal letters to all members of the United Nations urging contributions. (Memorandum from Murphy to Dulles; Department of State, Central Files, 974.7301/12–2656)
  4. Dulles initialed his approval of the recommendation at the bottom of the source text.