I have given careful thought to your questions and I am enclosing a
memorandum containing this Department’s answers to those questions.
[Attachment]
MEMORANDUM3
1. What is the explanation for the
sudden interest of the United Kingdom in the Dam project in the
fall of 1955 after previous coolness?
The sudden interest of the British Government in the High Dam project
in the fall of 1955 appears based upon apprehension over the Middle
East situation as a result of the Egyptian-Soviet bloc arms deal,
reports of Soviet offers of general economic aid to Egypt, and the
issuance of the IBRD study that the
project was technically and economically sound.
The British Government was reported greatly concerned with the
Russian arms offers; Prime Minister Eden regarded the offer to Egypt as the most
“sinister” development in the East-West conflict since the Soviets
took over Czechoslovakia. The British Government informed the United
States in October 1955 it regarded a Russian undertaking to
construct and finance the High Aswan Dam following the sale of Czech
arms to Egypt would be a very serious blow to Western prestige and
influence in the Middle East, providing the Russians with a means of
exercising a dominating influence politically and economically in
this area.
The International Bank report issued in the fall of 1955 indicated
that the High Dam project was technically and economically sound.
The British Government, however, saw difficulty in relying on
participation by the Bank in financing the project, first because of
the delay and second, if international tenders were called for, it
would not be possible to exclude the Russians or the satellites from
bidding. The British Government stated it attached greatest
importance, however, to their fear of delay with the possibility the
Soviets would benefit therefrom.
2. What is the background of the
failure to question the Russians at the Geneva Summit Meeting on
their offer of arms and aid for the Aswan Dam?
At the time of the Geneva Summit Meeting in July 1955 the United
States was still in the phase of negotiating with Egypt on both the
acquisition of arms by Egypt and on the financing of the High Aswan
Dam.
[Page 628]
1. Arms. With regard to the question of arms,
grant military aid was offered to Egypt in August 1954 immediately
following the conclusion of the Suez Base Agreement between Egypt
and the United Kingdom. This offer was kept open until January 1955
at which time Egypt indicated it could not sign the agreement
required by United States legislation. Inconclusive conversations
with Egypt were held in June 1955 regarding the purchase of arms in
the United States. At this time reports of negotiation between Egypt
and the USSR on the acquisition of
Soviet arms were current, but these reports were not substantiated.
In the light of the failure to substantiate reports of an
Egypt-USSR deal on arms, the
United States in June 1955 approved in principle the purchase of
arms in the United States (a standard MDAP agreement having been signed by Egypt in December
1952) and on June 30 Egypt submitted its list of requirements which
were immediately sent to Defense for study as to availability and
timing. On July 1 Nasser
indicated that Egypt would pay United States dollars for arms which
the United States decided to supply.
This then was the situation regarding arms at the time of the Geneva
Summit Conference. Since the United States was actively negotiating
with Egypt on the acquisition of arms in this country and since
there was no substantiation of reports that Egypt was interested in
accepting a Soviet offer of arms (in fact, it was reported that
Egypt had decided to defer action on a Soviet offer in order to make
a “serious” effort to purchase arms in the United States), it was
believed to be neither necessary nor appropriate to raise this
question with the Soviets at Geneva.
2. High Aswan Dam. By the time of the Summit
Meeting in July 1955 the entire question of the Aswan Dam was still
in the preliminary phases of study by the IBRD, in consultation with the United States and the
United Kingdom. There had been no discussion or even reports of
discussions of a Soviet offer of aid to Egypt specifically for the
construction of this dam, although offers of general economic aid to
Egypt, in line with the new Soviet policy, had been reported.
Consequently, there were no grounds on which the matter of the Aswan
Dam could be raised at Geneva.
3. What is the background, and
what are the details, of your agreement with Foreign Minister
Lloyd in May 1956 by
which the Dam project was to be allowed to “languish”?
After a lengthy study of the possibilities of constructing the Aswan
Dam which began in April 1953 with a group consisting of one
Frenchman, one German and three Americans and concluded in August
1955 after a study by the IBRD, the
United States joined with the United Kingdom on December 16, 1955 in
offering to Egypt to provide $70 million of grant aid towards
defraying the foreign exchange cost of
[Page 629]
the first stages of work on the dam. The
United States and the United Kingdom also stated that subject to
legislative authority, and in the light of existing circumstances,
they would be prepared to consider sympathetically further support
toward financing later stages of the construction. This financing
would supplement assistance to be extended by the IBRD.
On February 22, 1956 the Egyptian Government raised certain
objections to the United States–United Kingdom offer of December
1955 and requested certain changes apparently designed:
- a)
- To assure United States–United Kingdom financial
assistance beyond that which had been offered for the first
phase of construction
- b)
- To secure greater freedom of action for Egypt in regard to
economic measures which might be required
- c)
- To increase the political attractiveness of the language
of the Aide-Mémoires.
It must be recalled that at this particular time the atmosphere
between Egypt and the West was not cordial owing to the Egypt-Soviet
Bloc arms deal, the Egyptian attacks against the Baghdad Pact,
Egyptian activities in North Africa and Egyptian intensification of
anti-United Kingdom propaganda. Because of this atmosphere and
because the British showed little disposition to change their
position as stated in the December 1955 Aide-Mémoires and in light
of the fact that the Egyptians themselves had indicated that no
further progress could be made on the December proposal until they
had reached agreement with the Sudan on the division of the Nile
waters (such an agreement then being considered remote by United
States observers), the United States believed that it would be a
mistake to bring the issue to a head by negotiating further on the
changes to the December 1955 Aide-Mémoire prepared by the Egyptians
in February 1956. Although the United States had reports that the
Soviets were making an offer of assistance for the Aswan Dam, we had
no intention of trying to outbid them. The United States considered
that it was necessary not only to give Egypt time to work out an
agreement with the Sudan, but also to make clear whether it really
intended to concentrate its resources on the Aswan Dam project.
It was thus with this background that the Secretary and Foreign
Secretary Lloyd determined at
Paris in May 1956 that no immediate further action was needed on the
Aswan Dam project.
4. What was your reasoning
regarding the withdrawal of the Dam aid offer?
The United States proposal to assist the Government of Egypt
provided, among other things, that before the commitment of any
funds beyond those initially offered there would be a satisfactory
resolution of the question of the Nile water rights, and that Egypt
[Page 630]
would concentrate its
economic resources upon this vast construction program. Egypt’s
response to the United States offer indicated that our proposal was
not satisfactory and might not be accepted in as much as it provided
Egypt with no assurance that support would be forthcoming for the
entire project unless Egypt complied with the aforementioned
conditions. Moreover, other developments in the months which
followed the United States offer of aid indicated that the project
was not likely to be a success.
- 1.
- The riparian states such as Ethiopia, the Sudan, and Uganda
evidenced increasing concern as to the effect of this project on
the availability of Nile waters for their own growing
requirements.
- 2.
- The financing of the Aswan Dam represented a tremendous
undertaking. Mobilization to finance the more than $1.3 billion
involved would require great economies in terms of both external
and internal financial outlays. Following the United States
offer it became increasingly clear that through its arms
arrangement with the Soviet bloc, Egypt was increasing its
dependence on the Soviets and had mortgaged a considerable part
of its foreseeable income. By building up its arsenal at the
expense of domestic economic development program it had
undermined its capability for financing the High Dam. It became
apparent during the first half of 1956 that Egypt’s foreign
exchange balances were such that they were drawing very heavily
upon sterling reserves to meet current foreign exchange
requirements, and in the circumstances it became very doubtful
as to whether Egypt could successfully carry out over the long
term its share of the economic cost for the construction of the
High Dam.
- 3.
- It was felt that Egypt’s share of the project could be carried
through if at all only by a prolonged and intensive internal
austerity program, which would involve the giving up of many
minor projects of shorter range designed to improve the Egyptian
economy. It was felt that in the face of a restive public demand
for some of these measures any Egyptian Government would
inevitably place responsibility for its austerity program upon
the “foreign money-lenders” and the terms they imposed, and that
the end result would be that the foreign lenders would
increasingly become unpopular and that the project instead of
promoting good relations might work in the opposite
sense.
- 4.
- The political attitude and actions of Egypt such as
recognition of Communist China, its anti-Western propaganda and
determination to enter into arrangements with the Soviet bloc
was disturbing in view of our announced willingness to assist on
what was understood to be Egypt’s major project.
- 5.
- The attitude of underdeveloped countries friendly to the
United States and associated with us in mutual defense
undertakings also had to be considered. Following the
announcement of the United States offer to assist in
construction of the Aswan Dam, leaders in these countries were
outspoken in questioning a program of large capital assistance
to a government which pursued neutralist and even unfriendly
policies toward the West. These leaders said that opinion in
their own countries was bound to be disillusioned by a project
of this kind when the friends of the United States appeared to
be receiving less favorable treatment.
- 6.
- Along with these considerations of an economic and foreign
policy character, views held and expressed in the United States
had to be taken into account. In this country, there was
opposition to United States assistance in the building of the
Aswan Dam, both on the ground of Egyptian policies and actions
which were considered to be unfriendly, and on the ground that
the Aswan Dam project would increase the cotton production of
Egypt and aggravate the problem of world surpluses in cotton.
Opposition was voiced during consideration of the Mutual
Security bill last year, and the Senate Appropriations Committee
even included in its report on this legislation a section
strongly opposed to the use of any Mutual Security funds for the
Aswan Dam.
In view of all of these circumstances and of the apparent
determination of Egypt to force a “yes or no” decision from the
United States despite the conditions outlined, it appeared that the
only sound answer that the United States could give Egypt was a
negative answer.
