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

33. Memorandum of Discussion at the 310th Meeting of the National Security Council, Washington, January 24, 1957, 9–11 a.m.¹

Washington, January 24, 1957, 9–11 a.m.

[Here follow a paragraph listing the participants at the meeting and agenda item 1.]

2. Significant World Developments Affecting U.S. Security

[Here follows Allen Dulles’ report on the Soviet Union’s atomic weapon and guided missile programs.]

Mr. Allen Dulles then informed the Council that all the available intelligence now at hand suggests that we are facing a crisis vis-à-vis Israel with regard to the Israeli position on the Gaza Strip and access to the Gulf of Aqaba. The Israelis apparently will not withdraw their forces from these two areas unless they are provided in advance with sure-fire guarantees. Mr. Dulles did not think that in this position the Israelis were bluffing, although he said he would defer to Secretary Hoover’s views on this point.

Turning briefly to the alleged agreement of Egypt, Syria and Saudi Arabia to finance the subsidy to Jordan previously provided by the United Kingdom, Mr. Dulles pointed out that the U.S. press coverage of this matter omitted one very significant point. The commitment of these Arab states to provide Jordan with a subsidy had been stated in terms of the Egyptian pound, which, as everybody knew, was on the toboggan. According to the latest quotations, the value of the Egyptian pound had dropped from about $2.80 to $1.60. Accordingly, if the subsidy to Jordan was provided in Egyptian pounds, Jordan would receive $20 million a year instead of $35 million.

Secretary Wilson remarked that Egypt was now as flat broke as it could possibly be. To this, Mr. Allen Dulles added the information that the Egyptians were now engaged, according to a reliable source, in trying to get gold from the USSR, which was to be paid for in Egyptian goods. It was not known the amount of gold which Egypt was seeking.

[Here follow Dulles’ report on the Kashmir situation and discussion of subjects unrelated to the Arab-Israeli dispute.]

3. United States Objectives and Policies With Respect to the Near East

[Here follows discussion of the OCB Progress Report of December 22, 1956 (scheduled for publication in volume XII), and of NSC 5428 (for text, see Foreign Relations, 1952–1954, volume IX, Part 1, p. 525.]

Turning to the situation in that area, Secretary Hoover said that it changed from day to day. The current Israeli attitude on keeping hold of the Gaza Strip and access to the Gulf of Aqaba were creating the very greatest difficulties. The fact of the matter was that clearance of the Suez Canal had proceeded a good deal faster than had been anticipated. Yet both sides in the controversy, the Israelis and the Arabs, were now engaged in using the situation in the Canal as leverage in their jockeying for position. The Israelis were stating their refusal to quit the Sinai peninsula completely unless they were guaranteed passage through the Canal. The Egyptians were threatening to halt Canal clearance until such time as the Israelis had completely quit the Sinai peninsula. Meanwhile, continued Secretary Hoover, we were urging Hammarskjöld to go to Cairo to talk with Nasser and possibly also to Tel Aviv to talk with the Israelis. We were in a position to place very considerable pressure on both parties to take a reasonable position, a power which Hammarskjöld himself did not possess. We were keeping in very close touch with Hammarskjöld, and we were also doing our best to keep completely separate the problem of the Suez Canal on the one hand and the Arab-Israeli problem on the other. It was still our belief that negotiations regarding a settlement of the Canal problem should be based on the so-called six principles which had virtually been agreed upon last autumn before the Anglo-French invasion.

Bearing on this situation was KingSaud’s visit to the United States next week. Saud would arrive in this country in New York, and it was all too likely that there would be certain complications in receiving him. The municipal authorities of New York City are not inclined to provide the usual reception to a foreign sovereign and, instead, the State Department would provide a program of full military honors, which Secretary Hoover summarized. Secretary Hoover expressed himself as on the whole very hopeful of good results from King Saud’s visit, on the basis of what we believe his attitude will be. So far as we can tell, he seems to wish to maintain an independent status in the Middle East. He apparently does not wish to join the Baghdad Pact, and perhaps we can end up by making Saud the senior partner of the Arab team rather than Colonel Nasser.

[Here follow Flemming’s comments on the petroleum situation.]

Secretary Humphrey then asked if he might report to the Council on recent demands on the International Monetary Fund as a result of the events in the Middle East. In the first place, Egypt now wishes to withdraw $15 million from the Fund. The economic and financial condition of Egypt was even worse, in Secretary Humphrey’s view, than Mr. Allen Dulles had earlier suggested. In fact, Egypt was flat broke. Accordingly, if we do proceed to permit them to withdraw this $15 million, they will immediately move to try to get us to unfreeze their funds in this country. Shortly thereafter they will ask us for $18 million with which to buy equipment to operate the Suez Canal; that is, equipment without which the Canal cannot be operated even though it has been cleared. On top of all this will come further demands for funds for deepening and widening the Suez Canal in the future.

In addition to these demands from Egypt, India wishes to withdraw $200 million from the Fund. This amount exceeds their second tranche and goes into their third tranche. The Indians are asking for immediate action on their request.

Finally, there are demands from the French. In addition to the $250 million they have already withdrawn, they will want substantially more in the near future. Incidentally, Secretary Humphrey added that the French financial situation was deteriorating at an alarming rate.

Secretary Humphrey indicated that a prompt decision must be reached with respect to Egypt’s request to withdraw the $15 million, and that the decision must be made in full realization that if we support this Egyptian request a flock of other demands will be sure to come, beginning first with India.

Secretary Hoover said that there was no present intention of freeing Egyptian funds frozen in this country, until Egypt had reached an agreement on an acceptable Suez settlement. Secretary Hoover added that he thought it would be useful if Secretary Humphrey would briefly inform the National Security Council of the practices and procedures of the International Monetary Fund. Secretary Humphrey agreed to do so, and pointed out initially that over past years the International Monetary Fund had worked very well, and that the Fund was at present in very good shape. He was, nevertheless, worried about the forthcoming demands for dollars, which he had listed earlier. On the other hand, the Directors of the Fund were by and large very responsible men, and they invariably demanded very clear commitments before they let their dollars go.

With respect to the Egyptian request, Secretary Humphrey said he could see no clear reason or excuse for withholding approval. He predicted, however, that this $15 million would melt away in no time at all, in view of Egypt’s desperate economic and financial condition. Accordingly, they will be right back at us for additional money, and they will have to be financed either by us or by the USSR. Whether Russia can afford to finance the Egyptians was something which Secretary Humphrey said he could not know. All he was sure of was that to date the Russians had never actually given any foreign country a dime. The notion of a Russian gift of money was completely phoney. The best they would do was to offer loans at 2% interest, the money to be used to finance purchases in the Soviet Union. Nevertheless, all we can do at the present time is to let the Egyptians have their $15 million and see what happens after that.

The President commented that if we provide any additional funds to Egypt we should certainly use the occasion to exact a commitment from Egypt that it will follow reasonable policies. Secretary Humphrey asked the President if he agreed that the $15 million should be provided from the International Monetary Fund to Egypt. The President indicated his agreement, and Secretary Humphrey said that while we did not need a decision with respect to the request of India right away, we should have to have such a decision within a few days.

Secretary Hoover observed that in the past, when nations drew money from the International Monetary Fund, it was expected that they would use the funds withdrawn only as a means of supporting and strengthening their own local currency. Things were very different today, because many of these countries take no measures whatsoever designed to stabilize their foreign exchange position. Indeed in some cases, as, for example, India, they make it perfectly clear that they propose to use money withdrawn from the International Monetary Fund for capital investment.

Mr. Allen Dulles expressed the view that financial assistance was now the most powerful weapon in the hands of the United States in its dealings with Egypt.

The discussion closed with a statement by Secretary Humphrey as to the need, in a relatively short time, to firm up the U.S. policy and program vis-à–vis Egypt, difficult as this task was bound to be.

The National Security Council:²

a. Noted the reference Progress Report on the subject by the Operations Coordinating Board; but that it was the view of the secretary of State that conditions were not yet appropriate for the development by the NSC Planning Board of a revised long-term policy toward the Near East.

b. Discussed the situation in the Near East in the light of:

(1) An oral report by the Under Secretary of State on recent developments with regard to the Near East.

(2) An oral report by the Director, Office of Defense Mobilization, on recent developments affecting the European oil supply position.

(3) An oral report by the Secretary of the Treasury summarizing recent requests by foreign countries for the withdrawal of funds from the International Monetary Fund.

c. Noted the President’s agreement that the United States should support approval of the current Egyptian request for the withdrawal of $15 million from the International Monetary Fund.

Note: The action in c above, as approved by the President, subsequently transmitted to the Secretary of the Treasury for appropriate implementation.

[Here follows agenda item 4 concerning NSC 5401, entitled “Denial and Conservation of Middle East Oil Resources in the Event of War”, approved by the President on January 2, 1957.]

S. Everett Gleason

1. Source: Eisenhower Library, Whitman File, NSC Records. Top Secret; Eyes Only. Drafted by Gleason on January 24. The time of the meeting is from the record of the President’s Daily Appointments. (Ibid.)
2. Paragraphs a–c and the Note that follow constitute NSC Action No. 1658, approved by the President on January 28. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council, 1957)