333. Letter From the Secretary of State to Senator J. William Fulbright1

Dear Senator Fulbright: I have received your letter of May 22, 1957 requesting further information in connection with the documents covering the Aswan Dam negotiations which have been forwarded to the Foreign Relations and Armed Services Committees.

I have given careful thought to your questions and I am enclosing a memorandum containing this Department’s answers to those questions.

Sincerely yours,

John Foster Dulles2
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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.

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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:

To assure United States–United Kingdom financial assistance beyond that which had been offered for the first phase of construction
To secure greater freedom of action for Egypt in regard to economic measures which might be required
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.

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.
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.
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.
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.
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.
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.

  1. Source: Department of State, Central Files, 874.2614/5–2957. Secret. Drafted by Stabler on May 28. The letter was written in response to a letter from Fulbright to Dulles of May 22, in which Fulbright raised additional questions concerning documentation on U.S. policy and the Aswan High Dam. (Ibid., 780.00/5–2257) Regarding the Senate request of January 29 for Department of State documentation concerning U.S. policy in the Middle East, see Document 44.

    On May 29, Rountree forwarded the letter printed here to Dulles for his signature. In the covering memorandum, Rountree advised: “in general there are no additional documents which should be made available to Senator Fulbright in connection with the Committees’ consideration of the Aswan Dam negotiations. The questions which have been raised touch upon other subjects, such as the Soviet arms deal with Egypt, and must be considered in the light of the atmosphere of that particular period which is not spelled out in these particular documents but which presumably will be spelled out in the documents for the years 1954, 1955, and 1956. We consider that it would be unwise to make available additional documents dealing with events not immediately connected with the Aswan Dam negotiations out of their chronological order.” Rountree concluded that it would be best to respond to Fulbright in the form of “an authoritative written statement”. (Ibid.)

  2. Printed from a copy that bears this typed signature.
  3. Shaw drafted sections 1 and 4; Stabler drafted sections 2 and 3 on May 28, and Dulles redrafted portions of the memorandum on May 29. The original draft of the memorandum, as transmitted to Dulles on May 29, is attached to Rountree’s memorandum to Dulles of May 29. A comparison indicates that the subsequent revisions affected paragraphs 3,4,5, and 6 of section 4.